House of Commons - Winter floods 2013-14 - Environment, Food and Rural Affairs Committee

Winter floods 2013-14 - Environment, Food and Rural Affairs Committee Contents

5 Government funding

Allocation of funding

36. Defra provides funding for flood and coastal erosion risk management to the Environment Agency, local authorities, IDBs and lead local flood authorities.[42] Flood protection schemes are also funded from non-Defra sources. For example: the local drainage rates paid to IDBs; local levies paid to the Environment Agency's Regional Flood and Coastal Committees; and funding provided to local authorities from the Department for Communities and Local Government.

37. Currently the vast proportion of Defra funding is provided to the Environment Agency. In 2013/14, about 92% of Defra's flood and coastal risk management funding was allocated to the Environment Agency. More specifically, in relation to revenue funding alone, about 85% of Defra's revenue funding was allocated to the Environment Agency in 2013/14. Maintenance work is funded from the revenue budget.

38. Where responsibility for maintenance work is devolved to make the best use of local knowledge and expertise, the allocation of Defra funding should reflect this to support the organisation undertaking the work.

Additional funding

39. The following table shows Defra funding for Flood and Coastal Erosion Risk Management in England since 2005/06. The table includes £130 million funding announced on 5 February 2014 (consisting of £110 million revenue and £20 million capital), which has been provided from within Defra's existing allocation as a result of "reprioritisation and efficient financial management".[43] The table also includes the £140 million additional funding announced in Budget 2014 (consisting of £85 million capital and £55 million revenue), which we understand is additional to Defra's existing allocation.[44] The breakdown of the extra £270 million across financial years and between capital and revenue has been provided by Defra.[45]

40. In addition to the funding shown in the table below, a wide range of flood recovery schemes for individuals and businesses affected by the winter floods has been announced by the Government since January.[46] Although we are aware of some confusion from potential beneficiaries about whether they meet the criteria and how to apply for available compensation,[47] on balance, we believe that the Government information and advice on these schemes is sufficiently accessible and comprehensive.[48]Figure 1: Flood Spending Trends

Source: House of Commons Scrutiny Unit, derived from data from Defra, Funding for Flood and Coastal Erosion Risk Management in England, February 2014.

Notes: The 2015/16 revenue figures are assumed to be maintained at the level of the Environment Agency Grant 2014/15 in cash terms, as per Budget 2013. The 2015/16 figures may be subject to change. External Partnership funding figures are not included in the table

41. We welcome the additional funding that has been announced by the Government in 2014, but a large proportion of the funding that has been referred to as "additional" should have been more accurately described as "reallocated".

42. If funding is reallocated from within an existing budget, Defra must ensure that the process is completely transparent and provide a clear and detailed accompanying explanation which sets out what activities are receiving less funding as a result.

Capital versus revenue

43. During this inquiry we asked Defra whether it would revisit the split between revenue and capital expenditure, with particular reference to the proportion allocated to maintenance within the overall revenue budget. Whilst explaining that limits for revenue are set by HM Treasury at spending reviews and that HM Treasury rules do not allow departments to switch capital funding to revenue,[49] the Secretary of State, Rt Hon Owen Paterson MP, has also acknowledged that "there is a bit of a grey area in practical terms".[50]

44. A number of witnesses, including the NFU, RSPB and the Local Government Association, called for greater flexibility to transfer budgets between capital and revenue or simply to place the money available in 'one pot' to allow full flexibility to target funding according to local priorities.[51] FHRC explain that:

45. The dredging currently being carried out by the Environment Agency on the Somerset Levels provides a good example of this "re-definition" or "grey area". The work is being funded as a capital expenditure as it is a "major exercise of considerable value and scale"[53] whereas routine dredging—i.e. maintaining the watercourses year-by-year following the big capital dredge—will "undoubtedly fall under revenue expenditure".[54]

46. Sonia Phippard, Director of Water and Flood Risk Management at Defra, told the Committee:

47. We agree with the Secretary of State that the distinction between capital and revenue funding "is a bit of a grey area in practical terms". Depending on the local circumstances, the separate budgets can also create a perverse incentive to defer maintenance work until it creates a need for capital expenditure.

48. We recommend that the Government assess the possibility of a transition to a total expenditure classification for flood and coastal risk management funding to allow funding to be targeted according to local priorities, and publish that assessment.

Maintenance funding

49. We are concerned that, within the revenue budget, absolute levels of funding for maintenance are at a bare minimum.[56] Our concerns were echoed by Lord Smith, who told us that the main lesson that the Environment Agency has learnt from the winter floods is "to push as hard as we possibly can for keeping and increasing maintenance expenditure alongside capital expenditure, and making sure that Government is aware of the degree of priority that has to be given to that".[57] Maintenance requirements are forecast to increase as extreme weather events become more frequent and as more flood risk management assets are built.

50. The ADA has called for fully funded plans to be drawn up to address the backlog of maintenance needed across the country:

51. The damage caused by flooding is extremely costly, unpredictable and sporadic. An Environment Agency assessment of its flood defences following the winter floods has identified around one thousand sites in need of repair. It is reported that the winter storms caused an estimated £135 million worth of damage to flood defences.[59]

52. Measures to prevent flooding, such as regular maintenance, are less costly and more predictable, but recurring. Whilst funding for new capital schemes is welcome, the Environment Agency needs to keep up the maintenance of its assets, and the maintenance and management of watercourses, "because that is every bit as important".[60] We were therefore concerned to hear from the Environment Agency that when the overall funding for maintenance does go down (for example, from £170 million in 2012/13 to £147 million in 2013/14[61]), the bit that gets squeezed is conveyance work, that is: regular clearing, dredging and keeping rivers clear.[62]

53. Funding for maintenance is at a bare minimum and needs to increase in line with funding for new capital schemes and the increasing flood risk caused by more frequent extreme weather events.

54. We recommend that Defra increase revenue funding to ensure that there is sufficient investment in maintenance work, including conveyance and dredging. We urge Defra to immediately draw up fully funded plans to address the backlog of appropriate and necessary maintenance work and to accommodate the increased requirement caused by the growth in numbers of capital assets.

Environment Agency funding cuts

55. Due to decreased Defra funding, the Environment Agency is reducing overall job numbers. Whilst it was reported that the consultation on job losses was temporarily put on hold during the winter floods,[63] we understand that some job losses will still go ahead. Paul Leinster, Chief Executive of the Environment Agency, informed us that the Environment Agency started the year with about 11,000 full-time staff; reducing to 10,600 full time staff as at 2 April 2014; and expected to reduce to 10,250 full-time staff by October 2014.[64] This equates to 750 job losses between January 2014 and October 2014 compared with reports of expected job losses of 1,700 earlier in the year.[65] We understand the change is due to the reallocated funding provided by the Government since February 2014.[66]

56. The Environment Agency has made some savings by changing its operating structure from a six regions structure to a 16 areas structure from 1 April 2014. We understand that back-office costs and support-service costs are also being looked at. However, the Environment Agency has allayed our concerns regarding its ability to respond to future flooding by confirming that the number of frontline jobs in flood and coastal risk management will not reduce[67] and reassuring us that the vast majority of jobs at the Environment Agency are based in local areas (not centrally in London).[68]

57. Frontline services in flood and coastal risk management must not be reduced. It is essential that funding cuts do not lead to unintended consequences where funding is redirected to one operational area to the detriment of another.

58. In its response to this report, we ask Defra to reassure us that there will be no cuts to frontline flood and coastal risk management jobs at the Environment Agency.

42 Defra, Funding for Flood and Coastal Erosion Risk Management in England, April 2014, p1 Back

43 Department for Environment, Food and Rural Affairs (XFL 0026) para 3.1 Back

44 HC Deb, 24 March 2014, col 32W [Commons written answer] Back

45 Department for Environment, Food and Rural Affairs (XFL 0026) para 2; email correspondence from Defra to the EFRA Committee, dated 3 April 2014 Back

46 UK Floods 2014: government response and recovery, Gov.uk news story, May 2014 Back

47 Q249 to Q251 Back

48 See: Flood support schemes: funding available from central government, gov.uk guidance, 16 May 2014 Back

49 Department for Environment, Food and Rural Affairs (XFL 0004) Back

50 Q241 Back

51 National Farmers Union (XFL 0024) para 16; RSPB (XFL 0020) para 16; Local Government Association (XFL 0021) para 13. Back

52 Flood Hazard Research Centre, Middlesex University (XFL 0014) para 9 Back

53 Q185 Back