House of Commons - Managing Flood Risk - Environment, Food and Rural Affairs Committee

Managing Flood Risk - Environment, Food and Rural Affairs Committee Contents

2 Funding for flood risk management

Roles and responsibilities

3. Managing flood risk effectively has economic as well as social and environmental benefits. The 2007 summer floods cost the UK at least £4 billion and several people died.[3] The Pitt review of those floods made recommendations on improving, monitoring and responding to flood risk; the majority were accepted by the Government.[4] Key measures were implemented in the Flood and Water Management Act 2010 (FWMA), including definitions of the key roles and responsibilities of the main bodies managing flood risk.[5] The Department for Environment, Food and Rural Affairs (Defra) has policy responsibility for flood and coastal risk management. The Environment Agency (EA) has a strategic overview of all sources of flooding and operational responsibility for managing risk from rivers and the sea. Upper-tier local authorities (i.e. unitary and county councils, known as Lead Local Flood Authorities) have responsibility for local flood risk such as from surface water and for encouraging greater local engagement and partnership working.[6] Within this framework, Internal Drainage Boards (IDBs) have a role in managing flood risk in a number of low-lying areas, such as Lincolnshire and the Somerset Levels.[7]

Flood risk: the figures

More than 5.5 million (one in six) properties in England and Wales are at risk of flooding from all water sources.
More than 2 million properties are at risk of flooding from rivers or the sea and nearly 3 million are susceptible to surface water flooding alone. A million properties are threatened by both.[8]
Climate change is predicted to increase the likelihood of sea and river flooding and coastal erosion. Changing rainfall patterns and some new building developments are likely to make flooding from surface water more frequent.[9]

Current funding arrangements

4. In January 2013, we published an analysis commissioned from the National Audit Office (NAO) setting out levels of public and private investment in flood defences and their maintenance, the level of protection this investment is providing, and how engaged local communities are in developing the delivery plans.[10] The NAO reports that Defra will spend an estimated £2.3 billion on coastal erosion and flood risk management in the current spending period.[11] This spend is divided into capital funding—on new and improved defences, major refurbishment of defences and other expenditure on assets, plant and equipment—and revenue expenditure.[12] The latter includes routine maintenance of flood defences, emergency planning and response, forecasting and warning services, and other running costs. Funding in 2012-13 was split with a capital budget of some £266 million, compared to a revenue budget of just under £295 million. For 2013-14, the figure for capital spend is higher at just under £294 million whilst revenue spend is set to decrease to around £280 million.[13]

5. Around 93% of Defra's flood defence budget is allocated to the EA as Flood and Coastal Erosion Risk Management Grant in Aid (FCRM GiA)which in turn is allocated to funding projects and ongoing work.[14] The method by which funding is allocated to specific projects changed from April 2012 to reflect a new 'Partnership Model.' This is discussed below. Defra retains a small proportion of the overall flood risk management budget for projects such as the Coastal Change Fund, Community Pathfinder projects, and research and development.[15]

6. Additionally, some £129 million will be provided over the current spending period in the form of retained business rates, revenue support grant and direct grants from Defra to Lead Local Flood Authorities (LLFAs) to support their new roles under the Flood and Water Management Act.[16] Central Government funding to local authorities via the Department for Communities and Local Government for flood and coastal erosion risk management has increased in recent years. Local authorities are free to decide how much of this amount to spend on their own flood and coastal risk management activity in light of other local priorities as the funding is not ring-fenced. Local authorities reported spending some £104 million in 2011-12 compared to some £90 million in 2008-09 on flood and coastal erosion risk management.[17] Local authorities also pay local levies to the EA of some £30 million a year towards funding local priority schemes.[18]

INVESTMENT LEVELS

7. The original provision of a total of £2.17 billion for the current spending review for flood and coastal defence works represents a 6% fall in central government funding compared to the previous spending period.[19] However, in the 2012 Autumn Statement the Chancellor of the Exchequer announced additional funding, raising spend to a level close to that of the previous spending period. Some £120 million of funding would be made available for flood defence work, to be spent in 2013-14 and 2014-15.[20] Table 1 below sets out the level of funding provided to the EA for 2007-08 to 2014-15.[21]

Table 1: Environment Agency Flood and Coastal Risk Management Grant-in-Aid Funding:

2007-08 to 2014-15

* Additional funding refers to £120 million announced in the Autumn Statement 2012

Source: Report by the Comptroller and Auditor General, Department for Environment, Food and Rural Affairs and Environment Agency, Flood Risk Management in England, HC 1521, October 2011, p 13

8. The Secretary of State for Environment, Food and Rural Affairs, Rt Hon Owen Paterson MP, said that, when £148 million of partnership funding from sources other than central government grants was included, more would be spent over the current four year spending period than during the preceding four years.[22]

9. In the last spending review period, 182,000 households were given improved flood protection against a target of 145,000.[23] No targets have been set for the current spending review period as Defra considers that short term targets do not always lead to the best long term outcomes.[24] Nevertheless, the Secretary of State told us that total funding committed to date would improve protection for some 165,000 homes by 2015; some 20,000 more than originally estimated reflecting the increased funding announced in the Autumn Statement.[25] This should be set in the context of the more than 5.5 million properties in England and Wales being at risk of flooding.

10. Many witnesses were concerned that overall funding for flood risk management was inadequate. The Local Government Association (LGA) considered funding was insufficient given the "huge" scale of the problem.[26] The Association of Drainage Authorities (ADA) pointed in particular to the "urgent need" for increased revenue funding for the EA.[27] Indeed, in 2009 the EA calculated that funding needed to increase by £20 million year on year between 2010 and 2035 to sustain current protection as risk increased owing to climate change. The EA considered that a "steady investment" in building and maintaining defences was needed so that funding would reach around £1 billion a year plus inflation by 2035.[28] This equates to an 80% increase on the £570 million investment in such work in 2010-11.[29] Funding for the current spending period would have needed to be some 9% higher.[30]

11. The NAO noted that current costs of damage to properties caused by flooding from rivers and the sea was around £1.3 billion per annum but that this could rise to between £2.1 and £12 billion by 2080, based on future population growth and if no adaptive action was taken.[31] The wide range in figures reflects the level of uncertainty over the impact of climate change and other factors on flooding over this long timescale.[32]

12. We received evidence on the high ratio of benefits to investment in flood defences, with some £8 of benefits achieved for every £1 spent on flood defence work.[33] The Chairman of the EA, Rt Hon Lord Smith of Finsbury, considered that such a ratio compared "robustly with virtually any other bit of infrastructure development that the Government seeks to undertake".[34] He outlined strong reasons why HM Treasury should ring-fence flood funding, including the efficiency of the EA's programme, the 200,000 properties protected during the floods of late 2012 and early 2013, the increasing threat of erratic weather patterns, and the high benefit-to-cost ratio of schemes.[35]

13. HM Treasury appears to have recognised the economic growth and regeneration benefits to be gained from investing in flood defences. It stated that the additional capital funding of £120 million announced in the Autumn Statement in December 2012 would deliver up to £1 billion of economic benefits and "help drive growth".[36] The Secretary of State told us that "emphatically these flood defence schemes help grow the economy".[37] However, the press reported that Defra Ministers had to fight to preserve flood defence spending in the next spending period.[38]

14. After we finished taking evidence, on 26 June, the Chancellor announced that Defra's budget for 2015-16 would be reduced by 10%; from £2.2 billion in 2014-15 to £2 billion in 2015-16. However, the settlement maintained resource spending on flood defences in cash terms.[39] Defra subsequently announced an additional £5 million for EA maintenance work.[40] Nevertheless, this is a modest increase since revenue funding for the EA is at its lowest since 2007 and some £50 million lower than in 2011-12.[41]The Chancellor also announced that there would be a "major commitment" of capital funding for new flood defences for the rest of the decade as part of an overall investment of £10 billion for specific science, housing and flood defence infrastructure projects over the period of the next Parliament.[42] Funding would rise to £370 million in 2015-16 then be protected in real terms until 2020.[43] This would deliver improved protection to at least 300,000 homes.[44]Despite this increase, capital funding in 2015-16 will be only £16 million higher than in 2010-11, and around £80 million lower than the level the EA anticipated would be necessary to match rising flood risk. Retaining funding constant until the end of 2020 will further increase the shortfall as the EA estimated that funding would need to continue to rise to reach £550 million in 2020-21.[45]

15. We welcome the Government's recognition that effective flood protection is essential for economic growth and for the regeneration of key parts of the country. Additional capital funding until the end of the decade announced by the Chancellor in the 2013 spending round is essential for securing flood defences to protect homes and businesses. However, funding has not kept pace in recent years with an increased risk of flooding from more frequent severe weather events and the relatively modest additional sums to be provided up to 2020 will not be sufficient to plug the funding gap.

16. Defra, together with the Department for Communities and Local Government, should act as an advocate for local communities with HM Treasury to secure additional investment for local flood defences. Defra must set out detailed evidence to demonstrate to HM Treasury that flood management capital funding must rise year on year by £20 million over the next 25 years to keep pace with increasing flood threat. This must be matched by a better balance between revenue and capital funding, whether from government or other sources. A review must take place prior to each spending period to ensure that funding is neither excessive nor inadequate in the light of developing scientific evidence on the likely long term impacts of changing weather patterns on flood risk.

Partnership funding

17. From April 2012, the EA has operated the Flood and Coastal Erosion Resilience Partnership Funding model, a new scheme for allocating funding to specific projects. It aims to encourage non-Government sources to provide funding for flood defence schemes. The proportion of central funding that a project receives will depend on the benefits it will bring. The EA notes that "instead of meeting the full costs of a limited number of schemes, the partnership funding approach means that government money can help meet the costs of any worthwhile scheme [...] As a result, more schemes are likely to go ahead than under the previous 'all or nothing' funding system". The amount of money that the Government will allocate to a scheme is based on the numbers of households protected, the damages being prevented, and other benefits the project would deliver.[46]

18. The Public Accounts Committee has questioned the extent to which Defra could rely on funding from local sources for flood risk management given that local authorities face their own funding challenges.[47] These challenges have increased with the 2013 spending round announcement of a reduction in local government spending of a further 2.3% for 2015-16.[48] The NAO told us that during the previous spending review period sources other than central government funded only a relatively small proportion of the overall £1.02 billion budget: £2 million in 2008-09 rising to nearly £13 million in 2010-11. The private sector contributed 20% of this external funding. The EA had expected that under the new approach external funding of £9.5 million would be achieved by 2011-12, with 70% coming from the private sector over that year and the following year. However, out-turn figures show that a total of only £5.3 million of partnership funding (from public and private contributions) was achieved for 2011-12. Nevertheless, the EA now expects that partnership funding between 2012-13 and 2014-15 will total £70.6 million, rising to around £160 million if local levy contributions are included.[49] Although higher than estimated at the time of the NAO's previous report, total funding from non-government sources remains low and only a small proportion of this is from the private sector with relatively few schemes including significant private funding.

19. Evidence on the effectiveness of the partnership approach was mixed. The LGA welcomed the principle of levering in private funds since this potentially allowed more schemes to go ahead than the previous system and established an "important link between the beneficiaries and flood defence investment". However, the Association also considered that the model needed to be reviewed to ensure that communities achieved the best value for money from limited public funds. It recommended speeding up the approval process which was currently "too long and complex", taking up to a year before final funding approval was given. Councils considered that this lowered confidence among potential funding partners and made long term planning difficult. The Association also wanted support for a more diverse set of outcomes since "smaller, more rural and dispersed areas" were unable to compete for funding owing to the allocation criteria being applied on a national basis according to outcomes set out in the Partnership Funding Score.[50] The Association also noted that, while many local communities recognised the need for more funding to go into flood defences, in many areas there were "simply not the businesses" to fund this.[51]

20. There were concerns that the partnership approach could allow some schemes to proceed ahead of more urgent schemes owing to their ability to secure additional funding from private sector or other partners. The EA acknowledged that there would be projects which had not proceeded that might have under the old system, but argued that other projects had gone ahead that would not have under the previous system.[52] Lord Smith noted that there were only a "handful" of schemes which had gone ahead with private sector investment.[53] The Secretary of State told us that the Partnership approach was a "good thing",[54] referring to schemes, such as a project in Leeds, which were going ahead that would not have done so previously.[55] However, he acknowledged that more private money could be delivered.[56]

21. In our 2010 report Future Flood and Water Management Legislation, we supported the principle that beneficiaries such as developers should help to fund new schemes but doubted whether additional contributions from other sectors would be forthcoming, particularly from local government which is already contributing to many existing and planned local flood defence projects.[57] On the evidence of early experience of the scheme, those doubts appear to have been well-founded.

22. Although the effectiveness of the Partnership model for allocating flood funding will become fully apparent in time, we are concerned that only small amounts of private sector funding have been secured to date. Defra must demonstrate in the next 18 months that this model can deliver much greater private sector funding.

23. The Department and the Environment Agency must simplify procedures to speed up delivery of funding to local authorities for whom efficient cash-flow is vital if project funding is to be secured from private bodies.

24. Our Natural Environment White Paper report published in July last year recommended that the Government work with like-minded Member States to incorporate sufficient flexibility in the revised Common Agricultural Policy such that agri-environment scheme funding could be spent on ecosystems management schemes, such as land management to reduce flooding.[58] The Government should ensure that maximum use is made of natural methods to prevent and manage flooding, which could enable the application of wider funding streams such as those available for EU agri-environment schemes.

25. We recommended in that report that Defra commissions and publishes an assessment of the possibility of requiring licensed water supply companies to deliver specific benefits to the natural environment, including improved water flow management. We further recommended that a series of pilot schemes, similar to that in Pickering, Yorkshire, which use ecosystems management approaches to slow the flow of water be established across England and Wales.[59] The Government's response explained that such approaches were being evaluated and that consideration of such issues took place within the price review process.[60] We regret that the current regulatory framework does not permit innovative investment in natural flood defences by water companies and expect Ofwat's next Price Review to rectify this.

Funding the defence of agricultural land

26. Some 14% of the agricultural land in England and Wales is at risk of flooding from rivers or from the sea.[61] The National Farmers' Union (NFU) told us that 58% of the most productive English farmland (grade 1 land) is within the floodplain.[62] The EA recognised the benefits of flood defences for agricultural land, noting that projects in 2011-12 had provided flood protection to more than 74,000 hectares of agricultural land.[63] Nevertheless, around 30,000 hectares of high-quality arable and horticultural land floods each year and this figure is likely to increase. Defra has estimated that some 35,000 hectares of high-quality horticultural and arable land will be flooded at least once every three years by the 2020s, and that this could rise to around 130,000 hectares by the 2080s if there is no change to current flood defence provision.[64]

27. Witnesses criticised the method used by the EA to assess the benefits of schemes since this skewed funding allocations. The NFU considered that the Agency's scoring model failed to reflect fully the benefits for food security of protecting agricultural land and that greater consideration must be given to the future value of food production.[65] The Country Land and Business Association questioned the 5 to 1 cost-to-benefit ratio set for household protection schemes, whilst for other assets the ratio was required to be much higher at 18 to 1.[66] The LGA also expressed concerns that the mechanism for partnership funding would not lead to strategic protection of land required for food security, and that it was not feasible for local communities to fund the necessary protection measures.[67] The EA acknowledged that the impact of flooding over a sustained period on places such as the Somerset Levels had "diminished the economic prospects of the farming community very substantially".[68]

28. We acknowledge the need to protect life and property adequately from the impacts of flooding but this does not mean that other imperatives, including the need to ensure food security, should not be taken into account when decisions are made on allocating scarce flood defence funding. We concluded in a previous report on food security that, faced with global challenges of meeting the world's demand for food in the face of climate change and population growth, the UK has a "moral duty" to make the most of its natural advantages for producing certain types of food and should aim to "increase production of those crops suited to be grown here".[69] The Prime Minister told the House in June that farmland must be protected "not least because, with global populations rising, the demand for food production is going to increase, and we should make sure we have a good level of food security in this country".[70] However, failure to adequately protect agricultural land from flooding is working counter to that aim and threatens to undermine the UK's ability to buffer itself against future crises in food supply.

29. The current model for allocating flood defence funding is biased towards protecting property, which means that funding is largely allocated to urban areas. Defra's failure to protect rural areas poses a long term risk to the security of UK food production as a high proportion of the most valuable agricultural land is at risk of flooding. Defra must require the Environment Agency to amend its scoring system to put a higher value on the benefits delivered by agricultural land, so that such land becomes eligible for a higher proportion of flood defence funding.

3 Environment Agency, Review of the 2007 floods, December 2007. Insured costs are estimated at £3 billion with additional costs of £1 billion Back

4 Sir Michael Pitt, The Pitt Review: Lessons learned from the 2007 floods, June 2008. Sir Michael Pitt conducted an independent review of the 2007 floods and their impacts at the request of the Government Back

5 See Flood and Water Management Act 2010, Sections 7 - 10 in particular Back

6 Report by the Comptroller and Auditor General, Department for Environment, Food and Rural Affairs and Environment Agency, Flood Risk Management in England, HC 1521, October 2011 Back

7 Association of Drainage Authorities webpages http://www.ada.org.uk/downloads/publications/IDB%20Vision.pdf Back

8 Environment Agency flood webpages http://www.environment-agency.gov.uk/homeandleisure/floods/31666.aspx Back

9 Environment Agency briefing note, Flood and coastal risk management, June 2010 Back

10 Ev w9. This information updated the NAO's 2011 Flood Risk Management in England report considered by the Public Accounts Committee in January 2012 Back

11 The current spending period runs from 2011-12 to 2014-15 Back

12 Revenue expenditure is also referred to by the EA as resource expenditure Back

13 Defra webpages,http://www.defra.gov.uk/environment/flooding/funding-outcomes-insurance/funding/ Back

14 Ev w10. FCRM GiA was formerly known as Flood Defence Grant in Aid (FDGiA). £2.01 billion in this spending period is allocated to the EA as FDGiA and an additional £120 million capital funding was announced in the 2012 Autumn Statement Back