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'unless the report referred to in subsection (6) has not been completed, in which case the date shall be 4 January 2012.'.- (Mr Byrne.)
(b) if the supplier or grantor has no such practice, the normal commercial practice of suppliers making similar supplies, or granters granting similar rights, in the United Kingdom at such a time.".'.
I do not intend to detain the Committee long. Amendment 38 is a simplification measure to probe the Treasury a little on how it has sought to introduce its anti-forestalling legislation. The Budget made great play of the simplification credentials that the Government wanted to present to the House and convince us with. Obviously, the Finance Bill, as presented, does more to complicate than to simplify the tax system. With the change in the VAT rate, there is a need for anti-forestalling legislation controlling supplies made in anticipation of a change in the rate. The amendment would replace the Government's clauses with the same form of clauses used in the Finance Act 2009, and seeks to probe the Government on why they have chosen to introduce a whole new schedule rather than simply to amend a couple of words in a perfectly good schedule that has already passed into legislation.
Mr Gauke: As we have heard, amendment 38 seeks to take anti-forestalling legislation introduced in the Finance Act 2009 for the reversion of the standard rate to 17.5% on 1 January this year, and use it to prevent forestalling as a result of next January's rate increase. That appears to be a simple approach, but in fact it would render the earlier anti-forestalling provisions inoperative and leave us wide open to a loss of revenue on transactions spanning 1 January 2010. Schedule 2 was closely modelled on the measure used when the rate reverted to 17.5% on 1 January 2010 and is intended to operate in the same way. There are no changes of substance and no hidden amendments. However, the anti-forestalling provisions in last year's Finance Act were specific to the last rate increase and are still required in relation to that increase. Trying to cover both rate increases in one schedule would lead to unnecessarily complex legislation.
Both last year's anti-forestalling legislation and the draft provisions in the Bill counter forestalling by introducing a supplementary charge to VAT, and so remove the tax advantage. The charge applies where a VAT invoice is issued or prepayment occurs before the rate rise, but where the provision of goods or services is to take place afterwards. Clearly, there could be a large number of transactions where an invoice was issued or a prepayment was made before 1 January 2010, but where the goods or services had not yet been provided. For example, a right to acquire goods at a later date might have been granted in 2009, but not yet taken up. In those circumstances, the amendment would mean that HMRC could not collect a supplementary charge that would otherwise be due under the provisions of the existing Finance Act 2009. This is because that legislation, as amended, would have effect only in relation to the VAT rate change on 4 January 2011.
Furthermore, I am sure that taxpayers find it much easier to refer simply to a single piece of legislation for the upcoming rate increase, rather than risk getting confused by having to refer backwards and forwards between two provisions. Schedule 2 as drafted is clear, and it will be effective in preventing forestalling as a result of the upcoming rate change. Retaining schedule 3 to the Finance Act 2009 without amendment will continue to prevent forestalling in relation to the latest rate change. I appreciate the manner in which the amendment was moved by the shadow Chief Secretary, but I would urge him to withdraw it.
Mr Byrne: I am not entirely convinced by that and I am sad that the Bill is adding complexity rather than delivering simplification, but on the basis of the Exchequer Secretary's explanation I beg to ask leave to withdraw the amendment.
'(6) The Chancellor of the Exchequer must, prior to the introduction of the change to the rate of VAT specified in subsection (1) above on the date specified in subsections (3) and (4) above, compile and lay before the House of Commons a review of the administration and availability of existing rate reliefs for items used by disabled people.'.
'(6) The rate of value added tax shall remain at 17.5% for those items subject to the standard rate which are intended to alleviate disability and which are for the exclusive personal use of a disabled person.'.
(a) assessing the impact on disabled persons of the amendment in subsection (1) on items for people with disabilities other than supplies zero-rated by Schedule 8, Part II, Group 12 of the Value Added Tax Act 1994 (drugs, medicines and aids for the handicapped, etc), and
Owen Smith: In amendments 26 and 27, I seek to draw the Committee's attention to another of what I view as the deeply regressive and painful effects of clause 3-the VAT clause-on some of the most vulnerable in our society, in this instance disabled people. Government Members might be under the impression that disabled people are exempt from the effects of VAT-I have heard that said in other debates-but I hope to demonstrate that this is not the case and that they, like many of the most vulnerable in our society, will be impacted negatively by clause 3 and the Budget overall.
Amendment 26 would require the Government to review the way in which current rate reliefs on items needed by disabled people are applied and to address the significant anomalies that exist in the provision of such reliefs. Amendment 27 covers items that are not wholly designed for use by disabled people, but which, although largely used by them, are not exempt from VAT and are therefore chargeable at the standard rate, and it makes the suggestion that they should be exempt from the increase to 20%.
Many goods and services are currently exempted, yet the existing administration of the provision of the rate relief is full of anomalies in its application in this country and is applied far more differently in many other European countries. The interpretation of what constitutes an item that is VAT deductible or VAT refundable is certainly much narrower in this country than it is in many other EU countries, and there are also anomalies, which I propose briefly to list.
The first anomaly concerns VAT relief on works carried out to residential accommodation, where often only partial rate relief is applied. By way of example, I refer the Committee to the tribunal case of Brailsford v. The Commissioners for Customs and Excise, which related to the change to Mrs Brailsford's house to accommodate a renal dialysis unit. There was rate relief on the unit and the installation of a toilet in her house, but the extension to the house to accommodate the required renal dialysis machine was not subject to any rate relief, so the case was rejected by the Excise and she had to pay full VAT on the unit.
The second matter that I want to discuss is the way in which the Bill refers to items designed specifically and solely for the use of disabled people. Unfortunately, this exempts many items that people require that have not been specifically designed for use by the disabled. An example is to be found in the tribunal case between
Mrs B Symonds and Customs and Excise. She had multiple sclerosis and needed to use an air purifier to make her life more bearable. It had not been specifically designed for use by disabled people, however, and was therefore not allowable under VAT relief regulations. She was therefore forced to pay the full price.
A third important area is the difference between physical and mental disabilities. Under the current legislation, people with physical disabilities obtain VAT relief for many items, but people with mental disabilities have far less access to that relief. A classic example is patients with epilepsy, who are often not designated as handicapped. They therefore do not get rate relief on items such as the alarms and motion sensors that are vital for detecting their sometimes life-threatening epileptic episodes.
The last item I want to talk about is transport, in which an enormous anomaly exists. People who need a wheelchair or are subject to the high rate mobility component of the disability living allowance get full rate relief. They are able to purchase adapted cars and get full VAT relief on them. However, a person who has two prosthetic arms-as does another Mrs Simmons-would find that they did not get any VAT relief whatever. They would be obliged to pay for the full adaptation of their car and would not be subject to VAT relief.
Mrs McGuire: Does my hon. Friend share the concern of many disabled people who are on disability allowance and who are faced with an unspecified threat to the continuation of that benefit? At the same time, they will have to meet the extra cost that will result from the VAT increase. The DLA, which is designed to meet the extra costs of their disability, will be undermined from January 2011 by at least 2.5%.
I pointed out in an earlier debate on the Finance Bill that, on the day of the Budget, I received two e-mails from constituents who were in receipt of DLA. They were horrified and angry that they were being presented as part of the problem, and that they were effectively being dubbed by the Government as a burden on society. They were equally concerned by the threat that their DLA would be cut.
I hope that I have demonstrated that significant anomalies exist, and that VAT bites on everyone in our society, including those whom we might fondly imagine to be exempt from it. I suggest that the Government urgently review the application of VAT to those people and bring before us a report on its impact.
John Hemming: I would like to talk to amendment 47, which has not yet been mentioned. Certain issues have been ignored in this debate. The impact of VAT on expenditure deciles is an important matter. I think that the Opposition reject that analysis, but the size of the household budget is a key determinant. Many people with disabilities are on quite a low income, through no fault of their own. A better way to analyse their situation is therefore to look at those poorer households by expenditure decile. The Institute for Fiscal Studies accepts that, in its analysis of the Budget, it ignored the fact that a cost of living increase in benefits is brought in every April, calculated on the basis of either the consumer prices index or the retail prices index.
We do not yet know what impact the VAT increase will have on the CPI or the RPI in January, but we do know that, the last time VAT was increased, the CPI went up by about 1.5%, and the RPI by about 1.1%. If we look at households by expenditure decile-that is, taking into account the budget of the household-we see that estimates show that the poorest households face an increase in costs of just under 0.5%. I believe that the expenditure decile is an entirely reasonable mechanism to use in this instance. So in January, we would expect them to see that increase, and in April they will have an increase of 1.5%, because they are on the CPI, rather than 1.1%. The poorer households will find themselves better-off on a cash basis after April.
Anas Sarwar (Glasgow Central) (Lab): I find that argument bizarre, as it runs so strongly against the very argument the Liberal Democrats used in the general election campaign, when there were big billboards describing the £389 bombshell. If that was going to affect people's household budgets, I assure the hon. Gentleman that this VAT increase will also affect them, so I believe that the RPI/CPI argument is irrelevant.
John Hemming: I thank the hon. Gentleman for making that point, which allows me to emphasise that certain households have their income linked to the cost of living-whether it be calculated by Rossi, RPI, CPI or whatever mechanism. As the cost of living goes up, those families are automatically given an increase in income. If that increase is greater than their increase in costs, they end up marginally better off. I am not saying that it is a massive amount of money, but the key is that the poorer households, as a result of the VAT increase, actually end up slightly better off. [Interruption.] They do. It is very simple. If the hon. Member for Glasgow Central (Anas Sarwar) wants to intervene again, I can explain it in far more detail.
Every year, there is an uprating in benefits. It happens in April and it is calculated according to a cost of living increase, which includes VAT. There are arguments about what should be included in the cost of living calculation and whether it should include mortgages, as the RPI does, or it should not include them, as the CPI does not. The realistic situation is that every April there is an increase based on the cost of living. VAT is part of the cost of living, so the households depending on index-linked benefits end up with an increase in excess of their extra costs-it is a relatively small amount of money, but it does happen.
I would like the Government to address one particular issue, about which I wrote to the Office for National Statistics. We need to be careful about households that include the disabled, through no fault of their own. Essentially, it is very difficult for them to work themselves out of poverty. I accept that some households use DLA to work, but that might be only 7% of the households receiving DLA. Those households could face, for example, substantial increases in energy costs, which would not be factored into the CPI in the same way as other things would.
I ask the Government to track the overall effect of the cost of living for households on lower incomes. A typical one might be a household whose head suffers from a disability and cannot get out of poverty. I am
concerned that we might encounter other changes over time that would not be picked up by RPI or CPI. Because we as a Government are concerned to protect people on lower incomes-we are doing so as part of this process; if we used only the RPI increase, the benefit to claimant households of the VAT increase would be only 0.6% as opposed to about 1%-it is important to assess the effect on them.
Mrs McGuire: Would it not be more logical to do as we suggested in earlier amendments and assess the impact on people before the VAT increase was introduced rather than do a retrospective on the impact? Would that not make far more sense?
John Hemming: I thank the right hon. Lady for that. One great thing about the Red Book this time is that it does a distributional analysis. It looks at the effect of the Budget on various households by various deciles. It looks at the income figures as well as the expenditure figures. I personally believe that counting my daughter as poor because she has a low income and depends on me is a wrong assessment. Looking at the size of the household budget is a far better mechanism than looking at the income figures for identifying poorer households. Those assessments were all done in the Red Book.
All I ask the Government to do is to go substantially further than is proposed in amendment 47, which is, frankly, totally inadequate. It simply looks at the impact of the VAT change in isolation. It ignores the fact that, three months later, a cost of living increase will not only wipe out the cost of the VAT but add a bit of extra money. I think the Government are moving in the right direction in trying to protect people on lower incomes, particularly those who, through no fault of their own, find themselves trapped in circumstances from which they cannot work themselves out of poverty.
Barry Gardiner (Brent North) (Lab): When someone receives an RPI-linked increase-or a CPI-linked increase, as it will become-it will include an element related to the increase in VAT, but the rest of the calculation for the CPI-linked adjustment will relate to all the other inflationary pressures that make up that figure. Is the hon. Gentleman really saying that if people in receipt of disability living allowance have to purchase major items of equipment on which VAT has increased by 2.5%, the increase in their allowances will compensate for that?
John Hemming: The hon. Gentleman has made a good point. As the hon. Member for Pontypridd (Owen Smith) said, there are issues to be considered in relation to major items of equipment, such as which should be zero-rated and which should be standard-rated. What I am considering now, however, are households in the lower expenditure deciles-less well-off households-across the country. I accept that there are circumstances in which people need to buy large items of equipment and that we must do the best we can to protect those people, but we should consider all households. As I explained earlier, I think it is better to consider expenditure deciles rather than merely considering whether a person is disabled, because very wealthy people may be disabled, and we should not design our policies to suit such people.
John Hemming: That is absolutely true. Only 7% of DLA recipients are in work. Obviously those people would be generally dependent on benefits, and they would therefore receive an uprating in benefits in April, based on the CPI. It is not clear what the amount will be this time, but when VAT rose from 15% to 17.5%, the RPI rose by about 1.1% and the CPI by about 1.5%. As I explained earlier, the Red Book shows that the additional cost to the bottom expenditure decile is under 0.5%.
Mr Byrne: Amendment 47 is a probing amendment. It touches on a complicated area of VAT law which was in the process of undergoing a degree of reform. I know that there will be no instant answers, but I think it would be useful for the Committee to know more about the direction that the Government are seeking to take in reforming this area over the next year or two.
Let me record my thanks to the Low Incomes Tax Reform Group, which published an important report entitled "VAT and disabled people-the case for removing the barriers". It identified a number of cases in which existing zero-rating provisions for people with disabilities are inadequate. The fact is that the increase in VAT to 20%, with no kind of balancing relief, on many supplies that are still needed by people with disabilities will cause some hurt and some cost.
I should like to know what the Government think about four issues related to reform. The first is the contrast between European Union and United Kingdom law. The Exchequer Secretary will have already memorised annex III of Council Directive 2006/112/EC. As he knows, it allows reduced rates for
"medical equipment, aids and other appliances normally intended to alleviate or treat disability".
He will also know that the application of UK VAT law does not mirror that flexibility precisely. A restriction now applies to many items because they must be designated solely for use by a person with disabilities. That appears to be a more stringent test than the one set out in EU legislation, and it would be useful to understand the Minister's attitude to that.
The second issue touches on a point made by my hon. Friend the Member for Pontypridd (Owen Smith). It concerns people with mental health needs. Annex III does not make any distinction between equipment needed for people with mental health needs and that needed for those with physical health needs, yet at present there are discrepancies in UK law that still need to be ironed out.
Thirdly, there are issues to do with the accessibility of work places. I think there is agreement across the House that it is important that there is extra support to get people with disabilities back into work. Obviously, that is going to be more important after the Government's reform of disability living allowance with, as they say, a more stringent-or, rather, a different-test for work capability assessment; we do not quite know what that test will look like. At present some businesses are able to get VAT relief on putting in place adaptations in order to help people with disabilities come to work in their
work places, but other businesses do not enjoy those reliefs. It would be useful to understand the Minister's thinking on that, too.
My final point concerns transport. UK VAT law provides limited reliefs for the purchase and lease of certain cars by disabled people. A good example is the Motability scheme, but it excludes people not in receipt of the higher rate Motability component of DLA. The Government have told us they want to reform DLA. We have not yet heard precisely how, but many people will be concerned that eligibility for such schemes will be curtailed and that some individuals may face a tax problem as a result of the Government introducing VAT increases at the pace they propose.
This is thus a complicated matter. I do not think the full consequences of the VAT hike are properly understood across the House, so the amendment asks the Treasury to produce a report showing what remedies will be provided for people who need to purchase disability equipment and who will be adversely affected by this rapid increase in VAT proposed by the Government in clause 3.
Mr Gauke: As we have heard, amendments 26 and 27 require both that before the rate increase takes effect the Chancellor must produce a review of existing reliefs for disabled people and that the VAT rate for standard- rated goods that are intended to alleviate disability remains at 17.5%.
I congratulate the hon. Member for Pontypridd (Owen Smith) on the manner in which he has set out his points; he obviously brings a great deal of expertise to this issue. I am also grateful to the shadow Chief Secretary, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), for amendment 47, which, as he says, requires the Government to produce a report on the impact on standard-rated goods for disabled people.
A number of concerns have been raised about the impact of the VAT increase on disabled people. The disabled will also face the increase in the standard rate of VAT, of course. As we have heard, however, and as Members will be aware, much of what such people need in respect of their disability-including medical and surgical appliances, chair or stair lifts, adjustable beds, adaptations to bathrooms and adapted vehicles-is zero rated and will remain so.
Mrs McGuire: With respect, I think that is a very narrow description of disabled people and the extent of their needs. The Exchequer Secretary has adopted a very mechanistic attitude in respect of the goods and services that disabled people need. Did he take any advice from the Government's Office for Disability Issues in assessing the impact of VAT on disabled people?
Mr Gauke: As I have said, many of the particular items that disabled people need are zero rated, and that will remain so. I make no claim that everything that disabled people will need is zero rated, however, and I come back to the point I made in earlier debates: the fact is that we face a crisis in the public finances. I suspect that, when the previous Chancellor was looking at this and proposing an increase in VAT, he wrestled with exactly the same issues that we have.
Malcolm Bruce (Gordon) (LD): Would my hon. Friend care to speculate on what the difference for disabled people would be between a VAT rate of 19% and one of 20%, and on what proposals Labour had to provide relief for the 1% difference?
Mr Gauke: My right hon. Friend puts a very good question and tempting though it is to speculate, I suspect that no particular mitigating proposals had emerged, but perhaps it is not for me to say. The fact is that VAT is one of the few levers available to any Government to raise substantial sums, and that remains the case.
Paul Uppal (Wolverhampton South West) (Con): Much is made by Labour of the regressive nature of the VAT rise. Given that the Labour Government inherited the most benign of economic conditions in 1997 and had a couple of years of good economic performance, why did they not choose to lower the VAT rate when they were in power?
My hon. Friend the Member for Birmingham, Yardley (John Hemming) set out the arguments, which I touched on earlier, for looking at expenditure deciles. He also asked perfectly sensible questions about the Government's examining the relationship between changes in the cost of living and uprating measurements. I am sure we will continue to look at these matters closely.
The shadow Chief Secretary asked some detailed and technical questions about annex III of the relevant EU directive, and about reliefs for transport. In order to do justice to those highly technical questions, and given the time, it would be better if I wrote to him, rather than attempting to answer them this evening.
As a result of the current zero rates, the UK has one of the most generous sets of reliefs in Europe for people with disabilities, worth some £400 million a year to disabled people. In the light of that, and given, as we have heard, that this amendment, like the others in the group, is essentially a probing amendment, I ask the hon. Member for Pontypridd to withdraw it.
Owen Smith: I suggest that we return to this issue another day. However, I do not feel that the Exchequer Secretary has addressed some of the key points. Although it is true that many items are exempt from VAT, some important ones are not, as I highlighted. The issue has not been dealt with adequately this evening, and I will pursue it on another occasion. However, I beg to ask leave to withdraw the amendment.
'(6) The Treasury shall prepare a report into the impact of the rise provided for by subsection (1) on mountain rescue services in the United Kingdom and lay it before the House of Commons.'.- (Mr Byrne.)
That the draft Parliamentary Standards Act (Staff Transfer) Order 2010, which was laid before this House on 26 May, be approved.- (Mr Newmark.)
That the Motion in the name of Sir George Young relating to the Electoral Commission shall be treated as if it related to an instrument subject to the provisions of Standing Order No. 118
(Delegated Legislation Committees) in respect of which notice of a motion has been given that the instrument be approved.- (Mr Newmark.)
That, notwithstanding the practice of the House as to the intervals between stages of Bills brought in upon Ways and Means Resolutions, more than one stage of the Finance Bill may be taken at any sitting of the House.- (Mr Newmark.)
Diana R. Johnson (Kingston upon Hull North) (Lab): I am very pleased to have secured this Adjournment debate this evening, three years after the flooding in Hull in 2007 that caused such havoc for my constituents. I remind the House that the flooding in Hull was caused by surface water flooding, that one in five homes were flooded, and that June 2007 was the wettest month recorded in Yorkshire since 1882.
I first pay tribute to all the local services in Hull that worked so hard for my constituents on the day of the flooding and in the months and years that followed. Many issues pertaining to the flooding are outstanding, but tonight, because of the limited time, I wish to explore just three. The first is the progress that has been made so far on legislation and new policy directions. The second is insurance. Thirdly, I will seek reassurance from the Minister about future funding for flood protection measures in my constituency.
"We will take forward the findings of the Pitt Review to improve our flood defences, and prevent unnecessary building in areas of high flood risk."
I was pleased that Hull was quick off the mark after the floods and had a report produced by Professor Tom Coulthard at Hull university. We then had the national Pitt review. It is to the credit of the previous Labour Government that all 92 recommendations in the review were accepted and many implemented in the provisions of the Flood and Water Management Act 2010. I seek reassurance from the Minister that those provisions will be implemented as soon as possible. I also seek information about the possibility of the new coalition Government producing a water White Paper in the near future.
One of Pitt's clear recommendations was on surface water management plans, suggesting that local authorities should become responsible for ensuring that arrangements were in place to assess and manage local flood risk from all sources, including surface water, and for developing a surface water management plan.
Mr David Davis (Haltemprice and Howden) (Con): I congratulate the hon. Lady on securing an Adjournment debate on this extremely important issue. Does she agree that the first stage of water management is to ensure that we avoid building not only on floodplains-I think that that is a common view-but anywhere where it will lead to the blocking of a watercourse or an increased risk of houses flooding?
The surface water management plan in Hull, which will have an impact on the right hon. Gentleman's constituency, will bring together the East Riding of Yorkshire, Hull city council, Yorkshire Water and the Environment Agency to put together a workable plan. A scoping exercise was undertaken, and the previous
Government provided £250,000 to develop the plan further. This summer there will be consultation, including on an aqua green in my constituency in the Orchard Park and Greenwood area, adjacent to the Cottingham area, which the right hon. Gentleman represents. I understand that the aqua green, alongside the other provisions set out in the consultation, would cost about £20 million to implement across the city. I seek reassurance from the Minister tonight about the future of that funding.
Andrew Percy (Brigg and Goole) (Con): I, too, congratulate the hon. Lady on securing the debate. I know that she has been a strong advocate for Hull during and since the flooding. While we are on the issue of surface water, I know that significant progress has been made, but the one point on which we do not seem to have made a great deal of progress is having a single number for residents to use to report all surface water flooding. That was a huge issue in Hull and the East Riding on the day of the floods, and we need more progress on it.
I turn to the issue of small grants to households, which was an important issue in Kingston upon Hull North. The previous Labour Government gave £5 million as part of a grant scheme to enable local authorities to apply to help their residents to protect their homes through the use of flood boards and air brick covers. My local authority, Hull city council, did not apply for that money. There were several rounds of the grant, but there seemed to be confusion about whether the council could apply. I would like to hear from the Minister whether further grant money will be available and whether the conditions could be clearly laid out, so that, as I hope, my constituents can apply for that money through Hull city council.
It is appropriate to pay tribute to the work that Yorkshire Water has undertaken in my constituency by investing in the Bransholme pumping station, which failed in June 2007. It has put in additional pumping facilities, and extra capacity is currently being developed at the station's lagoon. That is all to be welcomed, but further housing development is planned in the Bransholme area, so we need to keep an eye on whether we actually need a brand new pumping station in the years to come to meet the demand. Also, Yorkshire Water is looking to identify changes that might be necessary to the Humbercare sewerage system in Hull.
I turn to the issue of insurance, which has been an ongoing issue since 2007. The insurance industry has agreed to provide flood cover for most properties, but this is subject to the Government continuing to invest in flood risk management. I am aware of the statement of principles under which the insurance industry will provide insurance. That will run out in 2013. However, the Pitt report found that some people suffered from a hike in premiums and that excesses were much higher than before 2007. For example, Mr and Mrs Pearson lived in Kingswood and were insured with Norwich Union. In late December 2009, they were told that their premiums were to go up 33% and that their excess was to be £6,000. They were also told that if they personally commissioned an independent expert report specific to
their property that took into account the flood defences put in place, the insurance company would look again at the insurance premium. They were told by the insurance company that HU7, where Kingswood is, was very likely to flood again, but it did not seem to know anything about the work being undertaken to protect the area. It was only once my office had intervened and provided information from Yorkshire Water that we could get the premium down.
I am concerned that insurance companies do not seem to be aware of what is happening in areas such as Kingston upon Hull North, and are not distinguishing between the risk from surface water flooding and river flooding. At the moment, insurance companies only have to provide insurance for householders who had insurance in 2007, so in Hull the insurance market is essentially closed. Personally, in my home, I have come across this: I cannot shop around in the insurance market, but can only go to the provider I had in 2007. It was found that many people affected by the floods did not have insurance. It is disappointing that although some local authorities have adopted a cheap insurance scheme for council tenants, this has not been taken up by my local authority. I am concerned, therefore, about the future for residents in my constituency and their ability to find affordable insurance in the future.
That leads me on to the point about the continuation of funding for flood protection. It is estimated that by 2035 we will need about £1 billion a year to protect ourselves from flooding. Liberal Democrat Hull city council has constantly asked for more money for Hull, particularly from the previous Government, to invest in flood defences in the city. I was dismayed today, therefore, to read in the media reports that it is likely that the Department for Environment, Food and Rural Affairs will have its budget cut by 30% in the comprehensive spending review. I also understand that plans are being prepared by the coalition Government to privatise flood defence infrastructure, which means that the private sector will have to make up for the coalition Government's cuts to the Labour Government's plans for flood defences. Those private sector bodies would then be allowed to pass on the costs of flood protection to the people and businesses in the areas at risk of flooding, in the form of extra council tax, water rates and, perhaps, contributions from business.
Even most market economists would accept that there can be no greater example of a public good than flood defences. We surely cannot hand that responsibility over to the private sector to make a profit at the expense of communities at risk of flooding. Of course we want to encourage private investment and partnership to add to our flood protection work. However, handing flood defence to the private sector is not the way forward to protect us from flooding, and would be another burden on people and businesses in my constituency, which has some of the most deprived areas in the country. They have suffered from the recent recession and, I believe, will now suffer from the policies pursued by the coalition Government.
It appears that the Lib Dem-Conservative coalition is now preparing a flood tax on the victims of flooding in some of the most deprived parts of the country, which, in Yorkshire and the Humber, include Hull, Sheffield and Doncaster. I know that the Minister is a fair-minded gentleman. I hope that he can reassure me this evening
that the money put forward by the Labour Government for flood defences will be protected and that DEFRA will stand up to the Treasury by delivering on the commitment made by the previous Government that people would not suffer by having a flood tax imposed on them-a commitment made not only to the people of Hull, but to the people of the rest of east Yorkshire and the other parts of the country that suffered in the flooding of 2007. I hope that he will also be able to answer some of the other questions that I have posed this evening.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon): I congratulate the hon. Member for Kingston upon Hull North (Diana R. Johnson) on securing this debate and on raising a number of points that I shall endeavour to answer as best I can. She and I both contributed to Sir Michael Pitt's review, because we both represent constituencies that suffered from flooding and surface water flooding. I therefore understand entirely, as she will, the experience for those households affected; we probably both spent time in the days after those awful floods wading through houses that had been destroyed and meeting people whose lives had been completely turned upside down by the devastation. We were all impressed at the time by her concern for her constituents-a point echoed again this evening.
Let me address one point directly before I address any others. We have no plans to privatise flood defences, contrary to what was reported in the press today. That is not to say that we will not be looking, where appropriate, for contributions from beneficiaries to new schemes and other sorts of levy-funded operations, which we have discussed in the House in recent days and weeks, but I am happy to reassure the hon. Lady on her point as best I can.
The events of summer 2007 illustrated just how important the issues of flood management really are. Floods destroy homes and businesses, and pose serious risks to life. I know that the people of Hull understand that better than most, as do my constituents who suffered in the floods of that year. It remains the case that Kingston upon Hull and the surrounding areas have the greatest concentration of people and property at risk from flooding outside London.
Floods often happen quickly. The damage that they cause can take years to put right and, for those affected, can leave a lasting legacy of concern about it happening again. I am sure that the hon. Lady will have had the same experience as me, in that when there is heavy rain, the level of stress and trauma among our constituents who have been previously affected rises. We are only just starting to understand the implications that that has for people.
We often refer to extreme rainfall in terms of millimetres, but when we read about 20 Olympic-sized swimming pools of rain falling on Hull per second, the seriousness of the emergency becomes clear for all to see. It is therefore no surprise that Hull was the worst affected city in 2007, with 100 millimetres of rain in 24 hours, leading to the overwhelming of drainage systems and
the flooding of 600 streets, nearly 9,000 homes, 1,300 businesses and more than 90% of the city's schools. Nor is it surprising that the 2007 floods, which affected many areas, led to the largest recovery effort since the second world war. Specific recovery funding was provided by the previous Administration, and a successful UK application was made to the EU social fund. However, recovery on such a scale takes time. The previous Government took their last count in June 2009, at which time 48 households in Hull were still wholly or partly displaced from their homes.
The hon. Lady asked about the water White Paper. We will publish it in the summer of next year, and I very much hope that she will give us her thoughts on how it can be taken forward. It will look at a number of related issues, including, principally, the Walker and Cave reports, but if she feels that it should cover issues such as surface water flooding, I am certainly open to suggestions. I cannot answer her question on small grants now, but I can assure her that I will write to her and that I will see what can be done. I completely agree that very small grants-for air bricks, for example-can make a big difference when dealing with the technology of flood prevention. We want to encourage people to take responsibility for their own homes.
We all know that flooding happens, and that we cannot prevent it. Houses will get flooded. That is why the Government are determined to act on the hard lessons of past events, and why we have already made it clear that DEFRA's priorities under the coalition Government will include taking forward the findings of the Pitt review to improve our flood defences and prevent the unnecessary building in areas of high flood risk.
No one can have any doubt about the coalition Government's focus on deficit reduction, and DEFRA has already made a significant contribution to the savings that must be made in the current financial year. Flood management makes up a big proportion of the Department's budget, but immunity from the new financial disciplines is simply not possible. Despite those financial pressures, however, we have decided that we should maintain an increase in the money that taxpayers spend on flood defences this year. Thoughtful planning will mean that that will not impact on the number of households that we protect. We will continue with that thoughtful planning in our work on what is, as everyone knows, a necessarily challenging strategic expenditure review process. Indeed, that is already happening.
One issue that we must take forward in that context-it is one that is important to the people of Hull and the surrounding area-is insurance. I recently met representatives of the Association of British Insurers to discuss how we could work together to ensure that we have a way forward on flood insurance and a road map to 2013, when the current agreement between the Government and the insurance industry, known as the statement of principles, ends. I am confident that
the partnership that we have built with the ABI will help to ensure that appropriate and fair successor arrangements are in place after 2013.
On insurance, it is a matter of great regret that many of the people who are offered access to the cheap schemes often provided through local authorities or housing associations choose not to access them. I have raised this matter with the ABI and with housing associations, and I will continue to raise it across government if I have to. When such schemes can be included as part of people's rent, I believe that there is a case for offering them as an opt-out, rather than an opt-in scheme. I know of a housing association that offers £5,000-worth of household insurance for 50p a week. It is perfectly possible for people to make a rational choice on this if they are given the necessary information. I think that an opt-out would be better than an opt-in, but that is a personal view. I shall, however, take the matter up with the ABI.
The hon. Lady talked about information being made available to insurers, and that is a crucial point. The Environment Agency is the guardian of the data on surface water management plans, and it is important that that information should be passed on to insurers. I have had exactly the same experience as the hon. Lady, where insurers just say that a house has been flooded, and as far as the insurance company or broker is concerned, no distinction is made between surface or fluvial water, or between whether any or a lot of remedial action has taken place. My local authority is the guardian of that information at the moment. I want the Environment Agency to be absolutely up front-there are no secrets. In fact, we want to make public the work that government in all its forms is doing, so let us make sure that the Environment Agency makes that data available as soon as possible, so that insurance can access it. I am completely with the hon. Lady on that.
Diana R. Johnson: Will the coalition Government support the flood summit this summer that the previous Labour Government had committed to holding? Will that happen? It seems a good opportunity to share information so that people understand what is happening.
There is a lot of work in progress right now. I know that a working group has been set up in the Hull area to put together a multi-agency flood plan to define the roles and responsibilities of Government Departments and agencies for all flood risks. We have already heard from the hon. Lady about work by Hull city council on a surface water management plan. I understand that measures are in place to ensure joint working across Hull and the East Riding of Yorkshire. That type of multi-agency and cross-boundary partnership working is especially valuable.
Consultation by the Environment Agency on the River Hull flood risk management strategy and the River Hull and coastal streams catchment flood management plan began early this summer-on 21 May, I believe-and will run for 12 weeks. It closes on 13 August. The strategy includes a number of recommendations on works to improve the defences in the city of Hull and the maintaining of pumping stations and flood banks.
Such consultation is important. I would urge all groups and individuals with an interest in flood management in the area to contribute. That certainly includes farmers and others who naturally have concerns about the impact of possible changes on farm land. Their concerns are matters that will be fully considered as part of the assessment of options.
It would be wrong not to acknowledge that a lot of good work has been done since 2007, including by the people of Hull. The Environment Agency has almost completed a £10 million refurbishment of the Hull tidal barrier, which protects around 17,000 properties from tidal surges. Yorkshire Water and the Environment Agency have undertaken to refurbish the equipment in the East Hull pumping station. The work to the agency's pumps will cost around £900,000 and is due to be completed by the autumn.
There are new flood defence schemes at Burstwick, Hedon, which I believe is in the constituency of my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), and Hessle. The scheme at Hedon has been completed, while those at Burstwick and Hessle are under construction. Maintenance work and the removal of debris has happened on a number of watercourses, including the western drain, Setting dyke and Cryke beck. There have been improvements to pumping stations at East Hull and Bransholme, and the installation of new infrastructure at Burstwick, New Clough and Westlands drain. There has been a variety of small, local levy-funded projects-work funded by the local levy raised by the regional flood defence committee, plus supplementary funding from the Environment Agency, including projects in or close to the hon. Lady's constituency.
There is more to do, including at the national level. I have already said that one of DEFRA's top priorities is to take forward the findings of the Pitt review. Part of that is the work that we are now doing on the review of the regulations provided in the Flood and Water Management Act 2010 in the context of the better regulation action plan announced by the Department for Business, Innovation and Skills. We are working hard on establishing a time scale for implementing the Act, but it is especially pleasing that many of the authorities that will have new duties and powers under the Act are already getting on with managing flood risk. For our part, DEFRA is also working with key players, including local authorities, the Environment Agency and professional bodies, to ensure that they have the capacity to implement the Act.
Implementing Sir Michael's recommendations is not all about legislative change. Another important part is ensuring that local emergency planners and responders have the tools they need. We know that our emergency services, local authorities and the affected communities all do a fantastic job when called upon. However, one of Sir Michael's interim recommendations was that we should have a national flood emergency framework to provide a common point of reference. Like Sir Michael, I want to ensure that there is clarity about roles and responsibilities, and a proper multi-agency approach to both flood planning and the emergency response. We hope to publish the framework very soon.
One very good way of involving communities is through parish councils. In Swinefleet, in my constituency, and in Airmyn parish council, on which I sit, we have produced our own flood emergency
plans. I think that we should try to extend that throughout the country, and get parish councils thinking about how they can deal with emergencies such as flooding.
Richard Benyon: I entirely agree. We discussed that at length during a recent meeting of the chairs of the forums. There is an enormous amount of work that we can do to encourage such activity. We need a bottom-up, community-led approach. Some might even describe it as a "big society" approach, while others might call it a co-operative movement. I do not care what it is called; what is important is to understand that a lot of emotion is involved in protecting people's homes. I have seen wonderful examples of communities pulling together and not only enjoying the process, but creating a flood watch scheme rather like a neighbourhood watch scheme. People keep an eye on the excellent data that the Environment Agency now publishes, which enables them to provide information, make plans and take action whenever that is required.
It is also worth mentioning Exercise Watermark. On taking office, I was determined that the pressures on budgets should not prevent such an important exercise from taking place. Watermark will be a comprehensive test of local and national preparedness, and will no doubt yield some important lessons for us all. I am
delighted that the Humber local resilience forum will be involved in the exercise, which is planned to take place next March.
Let me end by giving the hon. Lady an assurance. Yes, we face very difficult financial circumstances, and yes, DEFRA faces the challenge of identifying the savings that are necessary to the Government's plans for dealing with the deficit. However, our absolute priority is to ensure that our flood defences remain as robust as possible. Of course I cannot guarantee that every single scheme will continue-I would not give that impression at a time when we are going through such a difficult process-but I can assure the hon. Lady that flood resilience is an absolute priority.
This Government want to continue in the spirit of the last Government, and to ensure that the schemes that are needed are there. We want to ensure that we are using every possible means to access funds-to use local resources and, when possible, levy funding-and also to ensure that we are fulfilling our responsibilities as a Government. We will not satisfy everyone, but I can assure the hon. Lady that this is an absolute priority for the Department and the Government.