Environment, Food and Rural AffairsWritten evidence submitted by the National Audit Office

In 2009 the Agency published a Long Term Investment Strategy which set out scenarios describing different future levels of flood risk with a number of possible levels of investment. The Agency estimated that investment in flood defences needed to increase annually by around £20 million between 2010 and 2035 to sustain then existing levels of protection as risk increases due to climate change. This is the equivalent of an overall 9% increase.

In the Department and Agency’s response1 to PAC in 2011, the Agency noted that it had started a new exercise to update the strategy and expected to present this to Ministers in late 2013. The Agency is currently peer reviewing2 its work so far on the strategy and its underlying assumptions. The new strategy will be the evidence base for the next spending review on flood risk management and decisions about future levels of investment that can be afforded.

Under the 2010 Comprehensive Spending Review (2011–12 to 2014–15), a total of £2.17 billion has been provided for flood and coastal defence works which represents a six% fall in central government funding for between 2007–08 and 2010–11.
Of this, 93% (£2.01 billion) is provided to the Agency as Flood Defence Grant in Aid3 and a further £129 million of new money is provided to Lead Local Flood authorities (LLFAs)4 in the form of retained business rates, revenue support grant and direct grants from the Department.

In November 2012, the Treasury announced the provision of an additional £120 million for flood risk management projects over the spending review period. £35 million released in 2013–14 and £85 million in 2014–15. Half of this funding will be awarded to the strongest bids from growth-enabling schemes and the remainder to accelerate planned schemes within the wider Environment Agency programme.
The Government intends this funding to be targeted to both areas where flood risk management can unlock opportunities for growth (such as protecting jobs in areas prone to flooding and encouraging investment in areas where flooding has previously occurred) as well as speeding up around 50 high priority defence schemes.
The additional funding represents an increase of 28% of the expected capital budget for these two years.

As part of the Spending Review settlement, the Agency expected to be able to make efficiency savings from capital investment of 15% (£54.1 million) over the current Spending Review period (2011–12 to 2014–15). In order to deliver its planned efficiency savings the Agency set up the Flood and Coastal Risk Management Efficiency Programme, which is developing initiatives to deliver improved ways of working.

The Agency reported to the Cabinet Office that in 2011–12 it had delivered its target for the year of £6.1 million of savings (3.8% savings against a 3.75% target). The target for 2012–13 is 7.5%, increasing to 15% by the end of the current spending period.
The Agency provides an update on progress against savings to the Department and the Cabinet Office on a quarterly basis.
At end of Quarter Two of this financial year the Agency had recorded £8.4 million savings (63%) of the £13.4 million target planned for 2012–13. Savings have been delivered through a combination of planning, operational and procurement initiatives such as avoiding unnecessary works, reduced contract periods and design changes.

In addition to the creation of new defences, our report notes that the Agency must continue to invest in its existing flood defences to maintain current levels of protection.

Maintenance is prioritised based on flood risk, with 79% of the Agency’s £81 million revenue maintenance budget being allocated to high consequence5 systems for 2012–13. At present performance is at over 98% against the target of maintaining 97% of assets in high consequence areas at above target condition.
Local authorities allocate funds to the maintenance of ordinary water courses6 and coastal defences in their area based on their local needs and priorities. In 2009–10 a total of £91.5 million was spent on all types of flood risk activity. By 2011–12, local authorities spent £156.3 million7 on flood defences, land drainage and coastal protection. Of this £88.6 million (57%) of all funding was spent on flood defence and land drainage.

We noted that if central government funding does not increase in the longer term, improving current levels of flood defence will depend on significant additional funding being secured locally.
We reported that during the previous spending review period the contribution to flood risk management made by funding sources other than central government was relatively small. These contributions had risen from just over £2 million in 2008–09 to nearly £13 million in 2010–11. The private sector contributed 20% of this external funding. It compares with overall investment of £1.02 billion from central government.
We reported that from April 2012 the Department was introducing a new funding model designed to encourage greater local fund raising and thereby increase overall investment in flood risk management. Flood defence projects which were previously ineligible for government funding , now have a chance to receive some government funding according to the benefits they are expected to deliver.
How much a project gets will be calculated using defined payment rates scaled to prioritise households at significant risk, especially in deprived areas, and to deliver statutory environmental obligations. Local funding contributions are encouraged for all potential projects but, where benefits significantly outweigh the costs, projects can be fully funded by government. In all other cases, local stakeholders will have to contribute funds if they wish the scheme to proceed.
Over time this may lead to the Agency part-funding projects with lower benefit-cost ratios than on average it would have previously supported. The Department expects these projects may deliver better value for money in the longer-term, for example, by protecting fewer households against more severe levels of risk. It wants the new system to incentivise greater local financial contributions, and create competition for the available government funding each year.
The PAC questioned the how much the Department could rely on funding from local sources for flood risk management considering that local authorities were also facing their own funding challenges

In 2012, the Department and the Agency jointly published a document8 to support the introduction of the new flood and coastal erosion resilience partnership funding policy. The document provides guidance and direction for new funding partnerships outlining roles and responsibilities, how partnerships should work and how the level of partnership contributions will be calculated. This document is intended to be revised in light of experiences and findings of the first partnerships.
At the time of our report the Agency anticipated that, in 2011–12, it would secure £9.5 million and, in 2012–13, it would secure £16.9 million of external contributions. It expected that 70% of the total contributions over the two years would come from the private sector.
In 2011–12, a total of £5.3 million of partnership funding (public and private contributions) and £37.5 million of local levy9 contributions towards the investment programme was achieved for the financial year.
Between 2012–13 and 2014–15, the Agency estimated that partnership funding (public and private contributions) will total £70.6 million and when including local levy contributions a total of £160 million will be achieved. The expected profile of partnership funding and local levy funding is outlined in Figure 1.
Although the total of external contributions is much higher than estimated at the time of our report, the proportion of private sector funding is lower.
The Appendix gives examples of projects where local funding has supported delivery.

In our report we noted that the reform of the way in which the flood defence programme is funded was intended to allow greater local input and flexibility. We said that under the new approach all flood risk management schemes including surface water, which were previously ineligible, could potentially be offered central investment according to the benefits they expect to deliver.

The Agency tell us that surface water schemes are considered for funding alongside other schemes that reduce flood risk or coastal erosion. Local authorities are currently developing surface water management plans and funding has been provided to support a number of schemes to address surface water issues across the country. These surface water schemes are now being considered as part of the regional flood and coastal committee programmes. Currently, there are a total of 77 surface water schemes with 21 in the North West and 24 in the South West. Figure 2 outlines the split of funding.

Total

58.0

32.0

53.9

16.7

160.6

Total spend on flood and coastal risk management schemes

176

195

195

Over two million properties are at risk of flooding from rivers or the sea and nearly three million are susceptible to surface water flooding alone. One million properties are threatened by both.
In our 2011 report, we note that in the last spending review period (2008–11) a total of 182,000 households were given improved flood protection against a target of 145,000.
There have been no targets set for the current spending review period (2011–14) as the Department considers that short term targets do not always lead to the best long term outcomes. However, it has forecast that 145,000 households will be protected over the period.
The Department publishes six outcome measures for flood and coastal risk management for 2010–14. They cover delivery by the Environment Agency, Local Authorities and Internal Drainage Boards. Three indicators cover the number of households where the risk of damage from flooding or coastal erosion has been markedly reduced as a result of spending on capital projects. The term “markedly reduced” relates to where the probability of flooding has been reduced from significant to moderate risk or moderate to low risk.
The Agency uses data from completed flood defence projects to measure its performance against the targets. The national estimate of properties at risk is calculated from the national flood risk assessment. There is therefore no single consistent set of data to demonstrate how the Agency’s investment is reducing national flood risk. The Agency told us that reconciling the two systems would not be cost-effective. However broad estimates suggest that during the previous three years work on flood defences had reduced the risk for about 10% of the current number of households at risk of flooding from rivers and the sea.

The latest data available on the outcome of the flood risk management programme is for the first quarter of 2011–12, shown in Figure 3.
It shows that by summer of last year the Agency had provided additional protection to almost 48,000 households. The Agency forecast this to rise to nearly 99,000 by the end of 2012–13 and that by the end of the spending review period, it would exceed its original forecast to provide protection to 145,000 households.

In 2008, the insurance industry came to an agreement with Government to provide standard flood cover to as many customers as possible. Known as the Statement of Principles, the agreement provided standard flood cover to domestic properties and small businesses at a risk of flooding of less than one in 75 years and to provide cover for those at greater risk, providing the Environment Agency had plans to reduce their risk over five years. The Statement of Principles ends in June 2013.
In 2010, the Department hosted a flood summit to discuss flood risk management and the challenges involved in flood insurance. From this summit, three working groups continued work on flood insurance and risk reduction and reported back in July 2011. At that time the Government aimed to have reached a decision on the role of private insurance after 2013 by spring 2012.
The PAC took the view in 2011 that the Department was leaving it too late to reach a new agreement and that this would lead to uncertainty and worry for affected households and communities. The PAC recommended that the Government needed to reach an agreement with the insurance industry urgently and that it should work more closely with the industry to ensure insurance cover is both available and affordable.

In July 2012, the Secretary of State announced that discussions with the insurance industry had made significant progress and that the Government was considering a way of formalising existing pricing arrangements and maintaining the current cross-subsidy in place between policy holders. This would be by an internal industry levy, which would avoid increasing costs to those not at risk of flooding whilst helping those in flood risk areas to continue to afford insurance.
As of December 2012 negotiations between Government and the insurance industry are on-going, but there are no details on the new agreement or when it will be finally completed.

6

Proportion of residential units within planning decisions where the application has been refused or has been amended in line with Environment Agency advice.

99.6%

95%

-

The Department and the Agency have also run a series of workshops as part of their capacity building programme, to help local authorities to deliver their new roles and responsibilities. Since 2010 there have been 81 workshops held across England in eight different locations. The Department has told us these workshops have had good attendance. The most recent workshops held in November 2012 on mapping surface water flood risk and the Water Framework Directive were attended by 144 organisations at eight regional locations.

Our report noted that whilst the Flood and Water Management Act 2010 had clarified the responsibilities of different bodies for local flood risk management, effective partnership working would be challenging in practice.
Local authorities are now required to take the lead in local flood risk management. Each lead local flood authority is required to produce a local flood risk management strategy. The Department also required them to produce a flood risk assessment as a preliminary to the strategy.
At the time of our report it was not clear how the Department would provide national assurance that lead local flood authorities have appropriate flood risk management arrangements in place. The Department was considering how to monitor performance of lead local flood authorities at an appropriate level. At the same time, it wanted to maintain an emphasis on local accountability for local decisions and minimise the burden of national reporting on local authorities.
We also reported that other bodies with an interest such as district councils, internal drainage boards, water and sewerage companies and the Agency are under a statutory duty to cooperate.
Whilst most local bodies are required to act consistently with local flood risk strategies, water companies must only have regard to them. We noted that the Department had not yet made it clear how they would influence and monitor the water and sewerage companies’ response to their new responsibilities.

All 152 lead local flood authorities in England completed a preliminary flood risk assessment by the deadline of December 2011.
By March 2012, full strategies were starting to be developed. Seven areas had their strategies completed and were consulting on them, 142 had strategies in development, and three areas had not yet started work on their strategies. The Agency report on local progress as part of the new requirement on them to report annually on flood risk management.
The Department told us that accountability for the quality and outcome of the strategies remains at the local level. Local flood authorities are accountable locally and are required to make sure that their strategies are consistent with the national flood and coastal erosion risk management strategy.
The Department plans to evaluate a representative sample of local strategies to indicate the effectiveness of the legislation by the end of 2015 (within five years of the requirements coming into force). The Agency will be reviewing local strategies as they are developed to ensure they are consistent with the principles set out in the national strategy.
In October 2012, the Department published a Statement of Obligations (SOO) that was directed to all water and sewerage companies. The SOO outlines all of the obligations that water and sewerage companies need to legally comply with and also outlines their responsibilities under the Flood and Water Management Act. In addition the Department is at present consulting on its Social and Environmental Guidance to Ofwat. This document sets out the priorities for regulation of the water industry which the Government expects Ofwat to reflect in their decision making.
The Local Government Association undertook a flood risk management survey in early 2012 and found that 64% of local authorities found support to fulfil their role from water companies was very or fairly productive. Twelve% found water companies not very or not at all productive. There was a generally positive response to how water companies engaged with the new partnership arrangements and in providing water company data. However, respondents were less positive about water companies’ ability to co-fund or work collaboratively with lead local flood authorities.

Regional flood and coastal committees bring representatives from the Environment Agency and local authorities together to make decisions about national investment in their area. Committee members told us that they required more robust, objective and consistent information to exercise their role more effectively. We recommended that the Environment Agency should review the quality of information it provides so that decisions taken by the regional flood and coastal committees are robust.

Since our report, the Agency has developed tailored handbooks to meet each individual Committee’s needs. The handbooks provide guidance for members on how the committee should operate (voting, sub groups, papers, approving programmes of work and wider responsibilities). It also includes case studies and explanations of funding. The Department is also currently working with the Agency to develop performance appraisal guidance for the Chairs of the Regional Flood and Coastal Committees. It is expected that this guidance will help committees develop clear work objectives.
In September 2012 the Environment Agency discussed the quality of management information with their Committee Support managers and as a result an improvement plan is to be developed for each region. The Agency is also working to support more cross boundary working between committees, so that more information is shared on common issues. An example of where work is progressing on supporting neighbouring committees to work more closely together is in the Anglian region where one induction day was held for three committees—which was the first time the committees had met together.

We identified that the Agency’s national flood risk assessment and its flood map did not present consistent information. The purpose of the flood map is to raise the awareness of flood risk particularly amongst those who live or work in those areas. It is used by property owners and local authorities for development planning purposes. Unlike the national flood risk assessment, the map does not take into account any flood defences and does not show the distribution of the level of risk within the areas potentially affected. The national flood risk assessment is not intended to provide assessment of flood risk at a local level. However, by 2015, the Agency intends to use the national flood risk assessment as its primary method of showing flood risk.
We also reported that flood risk management authorities have developed risk information over the years on a piecemeal basis, with the result that users can find it inaccessible and difficult to understand. The Agency recognised that flood risk information needs to be brought together and made clearer and simpler. In particular, local authority mapping and modelling of surface and ground water flood risk is far less advanced than the Agency’s approach for rivers and the sea. We recommended that the Agency introduce procedures by 2015 to systematically test the separate components of the national risk model and define clear performance targets against which their effectiveness can be tested. We also recommended that the Agency should develop an approach to communicating the uncertainty to those who use the national risk model.

The Agency told us it is changing the flood likelihood categories so that they are the same in both its national flood risk assessment tool and its flood maps for surface water.
The Agency is developing two systems to store and access data on flood risk from a variety of sources which they expect to be available in 2013–14. External parties such as local flood risk management authorities will be given access to the system.
The Agency has been working on assessing the confidence limits of the national flood risk assessment. The first completed phase has established a method for developing confidence levels which has been peer reviewed by academics and users. Phase two began in July 2012 to develop confidence levels for the whole of England. The Agency is also developing a tool that local staff can use to validate and amend information to improve confidence levels.
The Agency aim to publish the national flood risk assessment in late 2013.
The Agency told us it is continuing to develop its “Mapping All Sources Tool” (MAST) with the aim of generating a flood map showing the probability of flooding from all sources. Steps towards this include work to update the Flood Map for Surface Water, and better understanding the confidence in the data from different individual sources. It is planned that MAST will be in use in the Agency from 2014–15. Until a map combining all sources of flood risk is available, the Agency plans, from the end of 2013, to provide members of the public seeking flood risk information via its website with information that summarises the risk from all sources.
The Agency has been working with the Department’s capacity building programme to engage local authorities in the process. It is also planning to run a series of focus groups in 2013 to best understand how it can communicate the information from the national flood risk assessment tool to the public.