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House of Lords

Tuesday, 11 February 2014.

2.30 pm

Prayers—read by the Lord Bishop of Worcester.

Legal Aid

Question

2.36 pm

Asked by Lord Bach

To ask Her Majesty’s Government what assessment they have made of the extent to which Section 10 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, dealing with “exceptional cases”, is working as intended.

The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, the Government consider that the exceptional funding scheme is working effectively. We are monitoring its operation and will continue to do so.

Lord Bach (Lab): My Lords, I thank the Minister for his Answer as far as it goes. Parliament and the public were told time after time to believe that Section 10 would act as a safety net for those cases where it was manifestly unfair that the citizen should not have access to civil legal aid. However, the application forms are impossible for a non-lawyer to complete and a lawyer will not get paid a penny if the claim for legal aid is unsuccessful. Even worse is the fact that only in 3% of claims has legal aid ever been granted. The noble Lord was a member of the JCHR which, along with the Low Commission and many others, has recently criticised the working of this provision. Now that he is a distinguished member of Her Majesty’s Government, will he act to make this vital provision fit for purpose?

Lord Faulks: The provisions contained in Section 10 of the LASPO Act make it perfectly clear that it is there for exceptional cases where, in the absence of legal aid, there would be a violation of Article 6 of the European Convention on Human Rights or possibly of the provisions of the European Union. It is not about whether a case may be deserving; it has to fall specifically within the confines of the section. As to the application form, it was consulted on regularly and in detail before it became part of the process. I am surprised that solicitors are having difficulty in filling it in. It is possible for someone to fill in the form on their own and they can then have a preliminary view given to them by the Legal Aid Agency as to the prospects of success. It is true that the number of applications has been much lower than expected and it is also true that very few have been granted, but we are satisfied that the system is working in accordance with the section.

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Lord Thomas of Gresford (LD): My Lords, before the Bill was introduced, the Government said that they were expecting 5,000 to 7,000 applications a year. In fact, in the first year there were 893, of which only 23 were granted, which represents 1%. Is it not nonsense to suggest that this provision is a safety net for those who seek justice?

Lord Faulks: I can update the noble Lord by saying that in fact the total number of applications received is now 1,030, and the number granted is 31. I agree that it is a small percentage. It was difficult for the Government to predict exactly how many applications would be received. In fact, in some areas, including the area in which I practised, that of clinical negligence, there have been virtually none when it was expected that there would be very many. Trying to anticipate what might or might not be considered to be a violation of Article 6 has confounded many courts, not only in this country but also in Strasbourg.

Lord Woolf (CB): My Lords, perhaps what the Minister has just said indicates that I may have been right when I differed as a judge from my distinguished predecessor, Lord Bingham. He took a narrow view of the word “exceptional” while I took a very broad view of it. I regard it as a word which should be used to ensure justice in all cases where justice is required. Does the noble Lord agree with my approach?

Lord Faulks: The answer to the noble and learned Lord is that it depends very much on the context in which “exceptional” is used. The context in which it is used in this particular section is by specific reference to the European Convention on Human Rights.

Lord Beecham (Lab): My Lords, in answer to a recent Written Question from me, the Minister said that there had been 1,130 applications, of which 35 were granted, not the figures that he has given today. Be that as it may, what was the Government’s estimate of the number of successful applications and what did they anticipate would be the proportion of successful applications? Given that it has taken 14 months to reach a decision to grant legal aid in an important inquest case in which counsel appeared four times without any certainty of being paid, will the Government publish details of the times taken to determine applications?

Lord Faulks: In answer to the second part of the noble Lord’s question, the Government will be happy to publish the times taken. Indeed, I think that the noble Lord will be pleasantly surprised at how quickly these applications are being processed. In answer to the first part of his question, it was expected that some 3,700 would be funded each year. As I said in answer to an earlier question, it is somewhat mysterious as to why so few have qualified. Each case is considered separately by the Legal Aid Agency in accordance with guidelines given by the Lord Chancellor. All those doing this work are experienced and all of them follow the guidelines.

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Lord Pannick (CB): My Lords, the noble Lord said that Section 10 is working effectively. Will he give further consideration to the recommendation of the Low commission, chaired by the noble Lord, Lord Low of Dalston, that the application process for Section 10 is much in need of simplification? Will the Government act on the concern expressed by the Joint Committee on Human Rights about the lack of training for Legal Aid Agency employees who are responsible for making decisions about Section 10?

Lord Faulks: The Government are aware of the JCHR’s concern about the lack of training. I have been reassured that the employees are appropriately trained and aware of their responsibilities. In terms of the forms, I give the same answer that I gave before, which is that the matter is kept under review. It is believed that the forms are perfectly within the capabilities of solicitors to understand. If one of these forms is inadequately filled in, you are told, whereas with some forms in other contexts you never know which box you failed to tick.

Lord Phillips of Sudbury (LD): My Lords, can the Minister say whether any research has been done into the number of cases of citizens who would wish to make applications but are unable to find anybody to help them in making those applications?

Lord Faulks: I think it is approximately 61. I will have to write to my noble friend with the precise number who actually made applications. Very often they are given a preliminary view, which they can then take to a solicitor, who will then be able, if he has been given some encouraging words, to take the matter forward.

Baroness McIntosh of Hudnall (Lab): My Lords, will the noble Lord reassure the House, in view of the very small number of applicants who have been successful, that the Government have no plans to withdraw the funding before people have figured out how to fill in the forms?

Lord Faulks: I can give that reassurance.


Economy: Growth

Question

2.45 pm

Asked by Lord Spicer

To ask Her Majesty’s Government what are their latest projections for the economic growth of (1) the British, and (2) the Scottish, economy in 2014.

Lord Newby (LD): My Lords, the Office for Budget Responsibility is responsible for producing independent economic and fiscal forecasts for the UK economy. The OBR published a full analysis of the prospects for economic growth, employment and inflation in its forecast at the Autumn Statement. The OBR forecast for the UK is that the UK economy will grow by 2.4% in 2014. The OBR does not make separate forecasts for the countries that make up the UK.

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Lord Spicer (Con): Does my noble friend agree that there is a great difference between the two economies, and that this provides one reason why the Governor of the Bank of England was so right when he said that it would be virtually impossible for an independent Scotland to keep the pound? Indeed, is it not the case that if Scotland does fly the nest, it will not take many eggs with it?

Lord Newby: My Lords, there is increasing evidence from the business community that it believes that its involvement in the Scottish economy would be reduced were Scotland to become independent; for example, in recent weeks, Bob Dudley from BP has said that there would be “big uncertainties” about its continuing investment in Scotland. He is just one of a number of representatives of major firms who have questioned their long-term involvement in the Scottish economy if Scotland became independent.

Lord McFall of Alcluith (Lab): My Lords, the SNP White Paper said that,

“Scottish taxes will fit our distinctive social context”.

That seems curious and inexplicable, but does the Minister agree that in terms of the social context the single market between Scotland and England is crucial, since more than 70% of Scottish exports go to England and any disruption of that market will result in instability and will not be in the interests of either Scotland or the rest of the United Kingdom?

Lord Newby: My Lords, I absolutely agree with the noble Lord. The Treasury has done some work on the so-called border effect: what happens to growth if the Scottish economy and those of the rest of the UK are separated by a border. Its best estimate was that over a period of several decades, the Scottish economy could be about 4% poorer than would otherwise be the case, compared to a reduction in the rest of the UK economy of 0.2%. There are much bigger risks for the Scottish economy through independence than there are for the rest of the UK, but both sides would suffer.

Baroness Wheatcroft (Con): My Lords, can my noble friend tell us what would happen to the BBC in the event of Scottish independence?

Lord Newby: My Lords, I am not sure I can, but that demonstrates how difficult it will be to manage the independence process. There are so many parts of what we take for granted in the way that we do things in the UK that would have to be severed; for example, one has only to think about the value of having an integrated BBC to see that if it were severed, how much of a loss that would be to everybody, whether they were in Scotland or the rest of the UK.

Lord West of Spithead (Lab): My Lords, it is quite clear that the defence of our islands will be considerably weakened if the Scots vote for separation. Does the Minister also agree that there will be a huge economic impact from defence firms inevitably moving south of the border because there will be almost no orders for defence equipment in Scotland?

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Lord Newby: My Lords, that just seems one of the many inevitable consequences were independence to take place.

Lord Razzall (LD): My Lords, going back to the Scottish banking system, does my noble friend believe that Alex Salmond is behind the suggestion that RBS would relocate to England in the event of independence, as had the last taxpayer bailout occurred in an independent Scotland it would clearly have bankrupted the Scottish economy?

Lord Newby: My Lords, the noble Lord may be right. An independent Scotland would have banking assets equivalent to 1,254% of Scottish GDP—more than Ireland, Iceland and Cyprus when they ran into banking difficulties.

Lord Foulkes of Cumnock (Lab): My Lords, does the Minister recall that Alex Salmond used to be an economist with the RBS? Does that not say everything? Will the Minister confirm that economic growth in Scotland in the third quarter of 2013 was much the same as economic growth in the United Kingdom, which shows that devolution is working, that Scotland is getting the best of both worlds and that we are in fact, to coin a phrase, better together?

Lord Newby: My Lords, I agree. For example, it is very interesting, looking at what has been happening to unemployment not just over the past few months but over the past couple of decades, that in the 1990s unemployment in Scotland was slightly higher than it was here. In recent years, and particularly in the past few quarters, it has been slightly lower. It shows that Scotland, while moving broadly in line with the UK, can do better than the rest of the UK, as it has done in a number of respects. It is quite difficult to see how it could replicate that pattern if it were independent.

Lord Kilclooney (CB): My Lords, Scotland, like Northern Ireland and Wales, receives an annual block grant. Can the Minister confirm that the block grant to Scotland is now £30 billion per year, and that should Scotland become independent, the people of Scotland would lose that £30 billion?

Lord Newby: My Lords, it is not quite as straightforward as that. There are, for example, great arguments about the division of oil revenues. This has to be set against the block grant that Scotland gets. When looking at the economic consequences of independence, you have to look a long time in the future, not just a year or two. Independence is not for Christmas—it is a long-term business. The question for everyone in Scotland is not whether we are going to be better off in six months or a year or five years, but where we are going to be 10, 20 or 50 years down the line, because once you have done this, you cannot reverse it.

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Food and Soft Drink Industry: Sugar

Question

2.52 pm

Asked by Baroness Morgan of Ely

To ask Her Majesty’s Government what representations they have made to the food and drink industry about reducing levels of sugar in processed products in the United Kingdom.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con): My Lords, through the public health responsibility deal calorie reduction pledge, food and soft drink companies are taking a range of actions to reduce calories, including sugar, in their products. Currently 38 businesses are signed up to the pledge. We are working across the industry to encourage further sign-up.

Baroness Morgan of Ely (Lab): My Lords, five out of eight members of the carbohydrate working group on nutrition which advises the Government have direct links to the food and drink industry. Does that explain why it has taken five years for this group to report? Can the Minister explain why we do not simply follow the position of the World Health Organisation, which is expected to report that people’s energy from added sugar should be reduced from the current recommended level of 10% to 5%?

Earl Howe: My Lords, the reason that we meet the food industry is to ask it to do more than it is doing at the moment. If that is what the noble Baroness means by the Government’s links to the food industry, then I make no apology for them. Our current emphasis is on overall calorie reduction, of which sugar can form a part. The scope for reformulation to reduce sugar levels varies widely depending on the food, and a reduction in sugar levels does not always mean that the overall calorie content is reduced. The Scientific Advisory Committee on Nutrition is currently undertaking a review of carbohydrates, as part of which it is looking at sugar. Its report will inform our future thinking.

Baroness Brinton (LD): It is shocking that a 375-gram portion of Sharwood’s sweet and sour chicken with rice contains six teaspoons of sugar. Some of our supermarkets, notably Waitrose, are working with their suppliers to reduce the amount of sugar in processed food, but many are not. What steps are the Government taking to ensure that all supermarkets and suppliers follow those setting a good example and reduce the amount of sugar, as well as clearly labelling sugar, in their processed foods?

Earl Howe: My noble friend raises a series of important issues. I can tell her some encouraging news on this front. Sainsbury’s and Tesco, for example, have pledged to reduce the sugar content in their own-brand soft drinks. We are asking other supermarkets to follow suit. I think that the noble Baroness will be aware that Lidl made an encouraging gesture the other day in

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pledging not to display sweets at till exits. However, we are working across a range of areas, not just reformulation of food but pack size, introducing low-sugar or no-sugar alternatives, and looking at ways in which food is promoted.

Lord Brooke of Alverthorpe (Lab): Will the Minister please explain why in his first Answer he referred only to the food and soft drinks industry? Why did he not refer to the alcoholic drinks industry? Is it not true that, in the 130 meetings which the Government have had with the drinks industry since 2010, no progress whatever has been made on persuading it voluntarily to show calorific effects and sugar content on the labels of its products?

Earl Howe: No, my Lords, that is not so. Ninety-two producers and retailers committed through the responsibility deal to having 80% of bottles and cans on sale in the UK displaying unit and health information and a pregnancy warning by the end of 2013. The three elements that industry has committed to display on labels are: the drink’s unit content, the Government’s guidelines for lower-risk drinking, and pregnancy warnings. I argue with the noble Lord that this is progress.

The Lord Bishop of St Albans: My Lords, while I support the need to reduce the level of sugar in processed food wherever possible, I am concerned that this alone will do little to improve the nation’s health or deal with the problem of obesity. What progress are the Department for Education and the Department of Health making on reducing the number of calories in meals served in schools, and what progress is being made on increasing the level of physical activities for the pupils in our schools?

Earl Howe: My Lords, tackling obesity calls for action by the widest possible range of partners, including the food industry but also including schools. That is what we are trying to do through the responsibility deal. Our National Child Measurement Programme, the School Food Plan, the School Games and the money that we are putting into school sports funding—£150 million a year—all contribute to the joint effort across government to influence the way in which calories are consumed by children. I have encouraging news on that front, which is that the level of child obesity is now the lowest that it has been since 1998, so we are moving in the right direction.

Lord Ribeiro (Con): My Lords, I congratulate the noble Earl on leading on the successful amendment in this House which led to the vote going through the other place yesterday on smoking in cars. Can he further protect children by tackling the issues around obesity? What are the Government doing to encourage the soft drinks industry to take action on calorie reduction as part of the responsibility deal?

Earl Howe: My Lords, I think that the compliment should be paid to my noble friend Lord Ribeiro for the part that he played in bringing about the amendment

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on smoking in cars. A number of soft drinks companies have taken action to reduce calorie content in their drinks. Coca-Cola has reformulated its Sprite product. AG Barr pledged to reduce the average calorific content in its portfolio of drinks. I have mentioned Sainsbury’s and Tesco’s actions on their own brands. Premier Foods has reformulated various products and reduced sugar in those. Therefore, we are making headway and I think that the responsibility deal is proving its worth.

Lord Patel (CB): Does the Minister think it might be advisable to ask the Government’s Scientific Advisory Committee on Nutrition to define a standard of added sugar that should not be exceeded in 100 millilitres of fluid or 100 grams of food?

Earl Howe: I believe that I am right in saying that the experts would advise that it depends on the product that we are looking at. One cannot make a blanket rule for every type of food and drink.

Sudan

Question

3 pm

Asked by Lord Alton of Liverpool

To ask Her Majesty’s Government what is their assessment of the humanitarian situation in Darfur and other parts of the Republic of Sudan following the decision of the Government of Sudan to suspend the work of the International Committee of the Red Cross.

Baroness Northover (LD): Around 3.5 million people in Darfur are in need of humanitarian assistance, including around 380,000 people who were displaced in 2013. The suspension of the ICRC’s work therefore comes at a critical time, as it supports more than a million people. We are seriously concerned about the impact of this decision on them.

Lord Alton of Liverpool (CB): My Lords, I thank the noble Baroness for that reply. Will she confirm that in the 10 years that have elapsed since I described to your Lordships’ House the conditions in the refugee camps in Darfur, some 2 million people have been displaced and between 200,000 and 300,000 people have died there? Some 57 peacekeepers and UNAMID personnel have been murdered, with no consequences for those responsible, while humanitarian agencies are expelled and aerial bombardment continues unabated, both in Darfur and in Kordofan. Why, while these serial violations occur, do we use British resources to pay off Sudan’s debts? Why, as we approach the fifth anniversary of the indictment for crimes against humanity of Field Marshal Omar al-Bashir, the President of Sudan, can he travel abroad with impunity and continue to control vast personal and commercial interests while openly boasting that 2014 will be the year that he will finish off what he began in Darfur 10 years ago?

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Baroness Northover: My Lords, I pay tribute to the noble Lord for the spotlight that he has focused on the situation in Sudan. He is right about the dire situation of many of the people there. We have no doubt about the serious shortcomings of the Khartoum Government. The UK Government’s primary and only concern is the welfare of the Sudanese people. Our engagement and support is driven by what will make a difference to them. We cannot walk away and we work at every level to try to secure the kind of humanitarian access that is required, as illustrated by what the noble Lord said. We are not paying off the debt of the Sudanese Government.

Baroness Kinnock of Holyhead (Lab): My Lords, President al-Bashir has been indicted by the ICC for multiple charges of crimes against humanity and genocide in Darfur, yet this cruel and vicious man is free to enjoy power and wealth while his regime’s oppression, corruption and aerial bombardments continue. Will the Minister give the House a clear undertaking that the UK will not follow the lead of the Netherlands and support calls being made for debt relief for a regime that does not care about the poverty and misery inflicted on Sudanese people?

Baroness Northover: We emphasise all the time that the Government of Sudan are responsible for meeting the needs of their own people. My right honourable friend the Minister for Africa raised a number of key issues relating to the areas the noble Baroness is talking about with the Government of Sudan and key regional figures in a visit last month and at the recent AU summit.

Lord Avebury (LD): My Lords, will my noble friend acknowledge that the Government of Sudan, led by an alleged war criminal, as has been said, has embarked on the genocidal starvation of the population of South Kordofan and Blue Nile by denying all humanitarian access to these states, and by the systematic destruction from the air of their agriculture? Could fresh charges be laid against al-Bashir at the International Criminal Court in respect of these crimes? Will the Government think of convening an international conference on the means of deterring the bombings, including the use of drones against aircraft used for that purpose?

Baroness Northover: As indicated by the previous question, the Government of Sudan have a clear obligation to co-operate with the International Criminal Court in terms of Security Council Resolution 1593 and have repeatedly failed to do so. We continue to make clear to the Government of Sudan that we expect compliance with the arrest warrants for the ICC indictees. The noble Lord mentioned further challenges and a possible new Security Council resolution. I must tell him that we think it is unlikely that that will be achievable at the moment, but obviously we take very seriously the reports that are coming through to us.

Lord Anderson of Swansea (Lab): My Lords, will the Government refuse to be part—directly or indirectly —of any debt relief operation?

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Baroness Northover: We are not negotiating any debt relief with the Government of Sudan. As the noble Lord probably knows, that has to be achieved through the Heavily Indebted Poor Countries process.

Lord Elton (Con): My Lords, will my noble friend tell us why it is unlikely that a second resolution could be achieved, what we are doing to change that situation and what other means there are to bring this terrible man to justice?

Baroness Northover: My Lords, if we could deliver what is already there, that would be a signal achievement, and we are doing our best to achieve that. The noble Lord will be aware that the aim to ensure that the dire situation of those in Sudan is addressed means that often one has to negotiate at every level of government to try to ensure that Sudan does not hold its people to ransom as we try to get humanitarian aid in.

Baroness Uddin (Non-Afl): My Lords—

Baroness Masham of Ilton (CB): My Lords, have other aid organisations also been banned? It is most extraordinary that the Red Cross has been banned as it is a non-religious, non-political organisation.

Baroness Northover: We are hoping that the ICRC will be able to deliver the humanitarian relief that it was delivering before. Negotiations are at a delicate stage. A number of other international organisations are working with enormous difficulty in the area, some with greater reach than others. Some are still there, but a number have had to pull back.

Reading Clerk

Announcement of Successor

3.07 pm

The Lord Speaker (Baroness D’Souza): My Lords, following the announcement of the retirement of the Reading Clerk, Rhodri Walters, at the end of this month, I chaired a board yesterday to select his successor. Three candidates were interviewed, and the successful candidate was Simon Burton. At the appropriate time, I shall invite the House to approve his appointment, but I am sure that, meanwhile, your Lordships will wish to join me in congratulating Simon on his new appointment.

Business of the House

Motion to Agree

3.08 pm

Moved by Lord Hill of Oareford

That the Question for Short Debate in the name of Lord Mawson, set down for Wednesday 12 February, be advanced to after that in the name of Baroness Jones of Moulsecoomb.

Motion agreed.

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Refreshment

Membership Motion

3.08 pm

Moved by The Chairman of Committees

That Lord Fink be appointed a member of the Select Committee in place of Lord Howard of Rising, resigned.

Motion agreed.

Pensions Bill

Order of Consideration Motion

3.08 pm

Moved by Lord Bates

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 5, Schedules 1 and 2, Clauses 6 and 7, Schedules 3 and 4, Clauses 8 and 9, Schedule 5, Clauses 10 and 11, Schedule 6, Clause 12, Schedule 7, Clause 13, Schedules 8 and 9, Clause 14, Schedule 10, Clause 15, Schedule 11, Clauses 16 to 23, Schedule 12, Clause 24, Schedules 13 and 14, Clause 25, Schedule 15, Clauses 26 to 31, Schedule 16, Clauses 32 and 33, Schedule 17, Clauses 34 to 43, Schedule 18, Clauses 44 and 45, Schedule 19, Clauses 46 to 49, Schedule 20, Clauses 50 to 56.

Motion agreed.

Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014

Motion to Approve

3.08 pm

Moved by Baroness Verma

That the draft order laid before the House on 9 January be approved.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 4 February.

Motion agreed.

Localism Act 2011 (Consequential Amendments) Order 2014

Motion to Approve

3.08 pm

Moved by Baroness Stowell of Beeston

That the draft order laid before the House on 7 January be approved.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 4 February.

Motion agreed.

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Water Bill

Committee (3rd Day)

3.09 pm

Relevant document: 20th Report from the Delegated Powers Committee.

Amendment 154

Moved by Lord Whitty

154: After Clause 50, insert the following new Clause—

“Onshore oil or gas activities: effect on water environment

In Part 1 of Schedule 5 to the Environmental Permitting (England and Wales) Regulations 2010 there shall be inserted after paragraph 13—

“Onshore oil or gas activities—effect on water environment

13A (1) Without prejudice to the operation of Regulation 35(2) and paragraph 5(1)(d) of Schedule 10 and of Regulation 35(2) and paragraph 7(j) of Schedule 20, the regulator shall refuse an application for the grant or variation of an environmental permit or for the transfer in whole or in part of an environmental permit if—

(a) the regulated facility to which the application for or transfer of the environmental permit relates is to be carried on as part of an onshore oil or gas activity; and

(b) the regulator is not satisfied that the applicant or the proposed transferee has made or will make adequate financial provision for preventing or mitigating pollution of the water environment, by ensuring all of the following—

(i) operation of the regulated facility in accordance with the environmental permit;

(ii) compliance with any enforcement notice or suspension notice or prohibition notice or mining waste facility closure notice or landfill closure notice which may be served on the applicant or transferee by the regulator under these Regulations;

(iii) compliance with any order of the High Court which may be obtained against the applicant or transferee under Regulation 42 for the purpose of securing compliance with any of the notices listed in sub-paragraph (ii);

(iv) compliance with any order of any court issued under Regulation 44 against the applicant or transferee; and

(v) recovery by the regulator of its costs upon any exercise of its power against the applicant or transferee under Regulation 57;

(c) for the purpose of this paragraph “onshore oil or gas activity” means any activity for the purpose of exploration for or extraction of onshore oil and gas;

(d) for the purpose of this paragraph “adequate provision by way of financial security” means financial provision which is sufficient in value, secure and available when required.”.”

Lord Whitty (Lab): My Lords, before we get on to this afternoon’s main business of flood insurance, I have down one amendment, relating to environmental regulation, which concerns the effect that fracking will have on the water supply system. This has been a major concern in another place for a number of Members of Parliament, who have local problems about the impact that any major expansion of fracking might have on watercourses and water supplies.

I do not intend, this afternoon, to open up the whole debate on the importance or otherwise of fracking, what its effects might be and whether we could repeat,

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in the UK and Europe, the experience of the United States. For what it is worth, I doubt that it will be transformational, but it will be important and will produce some significant gas and oil in this country. That will need to be tightly regulated by the Environment Agency, the HSE and local planning systems. In particular, water supplies and watercourses will need to be protected and, if anything goes wrong, fracking companies will have to be seen to be clearly liable.

On the relationship between fracking and water supplies, there are three main issues. First, there could be pollutants released, potentially, into water systems and aquifers by the fracking process—that is, the chemicals contained in the fluids that are used in the hydraulic fracturing process. There are also naturally occurring contaminants which could be released from the shale itself, including naturally occurring radioactive contaminants. There could also be fugitive emissions released into ground-water, particularly of methane. All of those could have serious effects on water quality, ecology, habitats and water supply. To a greater or lesser extent, all have been experienced in the United States, although on a limited basis.

Secondly, if the fracking industry develops on any scale, for the purposes of shale extraction fracking will also require major abstraction of water from the system. As we have already stressed in previous days in Committee, the urgency of reform of the abstraction system needs to take into account the impact of mass fracking on abstraction levels and hence on already stressed catchments. This is linked to amendments we discussed the other day. For example, if fracking companies take up the headroom in existing licences in particular catchments, then a lot of catchments could be in serious trouble, if they are not already.

Thirdly, there is the requirement for the cleaning and treatment of the water that has been used in fracking, which will need to be decontaminated.

Amendment 154 really focuses on the first of these effects, and to some extent the third, but all three are important for the water system and need to be taken into account. It is vital that we protect ground and surface water. For example, in the south of England, 70% of the water supply depends on healthy aquifers. This includes drinking water as well as water for industrial and agricultural use. Frankly, the American experience, though variable, is not completely reassuring. In another place, my colleague Joan Walley quoted an example from Pennsylvania, where methane was found in 82% of drinking water samples. We need to be reasonably confident that our regulators, the Environment Agency and the Drinking Water Inspectorate, will operate a much more effective regulatory regime here in the UK than has been operated in certain parts of the United States. Even so, and with a fairly high degree of confidence in our regulators, disasters—or at least leakages—may well happen.

We have a history of earlier energy sources to instruct us: the legacy of coal mining and, in a somewhat different vein, the earlier phases of the nuclear industry. Not only can pollution occur, we have seen the inability of the organisations that produced the pollution to finance the decontamination and the clear-up, which have required very substantial sums. We all support the “polluter pays” principle in theory, but we also

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have to ensure that the polluter can pay. In both coal and nuclear, it has in effect fallen to the taxpayer to pay for the clear-up over the past few decades, and that is still going on.

3.15 pm

The fracking of shale gas is likely to benefit the companies involved with substantial tax concessions and, whether rightly or wrongly, the companies involved expect to make substantial profits from fracking. Those companies really should be required to show not only that they will make their best efforts to meet all the environmental quality and safety regulatory requirements but also that, if something goes wrong, they have the ability to cover potential liabilities.

The proposed clause would amend the environmental permitting regime to include as a condition that companies intending to engage in fracking show, right at the beginning, that they will have the funds to meet clean-up costs, should pollution incidents occur to ground-water, aquifers and water supplies. This terminology is not that different from existing financial requirements under the landfill regulations and landfill directive, which are administered by the Environment Agency. The new clause would allow the regulator to refuse a permit,

“if … the regulator is not satisfied that the applicant … has made or will make adequate financial provision for preventing or mitigating pollution of the water environment”.

Surely that is the minimum that our communities and our water supply system should expect from those who are involved, or potentially involved, in fracking. If the companies cannot afford such financial provision, they really should not be in this business. I beg to move.

Lord Oxburgh (CB): My Lords, I have a question for the Minister in this general area. Does he feel that this proposed regulatory environment would cover cases in which fracking companies pipe sea-water on to land and then either dispose of it on land or, indeed, discharge it back into the sea? If it does not, it should.

I have a brief comment on what the noble Lord, Lord Whitty, said. To be fair, almost any ground-water or well-water that is drawn in regions that are underlain by coal measures—and this is predominantly the case in Pennsylvania—have some methane in those waters.

Lord Winston (Lab): Before the noble Lord sits down, does he have any information as to whether sea-water pumped back into the sea after fracking might be hazardous to the environment in the sea-water?

Lord Oxburgh: My Lords, I think that it depends almost exclusively on how that water has been treated by the company that has used it.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, as the noble Lord, Lord Whitty, has explained, Amendment 154 would require onshore oil and gas operators to provide financial security when applying for an environmental permit so that funds would be available to deal with any water pollution incident caused by the operator. The amendment would

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impact on both the conventional and unconventional oil and gas sectors. It would address any pollution that they caused to the water environment but not any other damage that might be caused by their activities.

We want a successful industry in this country—an aspiration supported at Second Reading—to provide us with an important source of gas for our future, but it is vitally important that it is safe. We already have a well established UK conventional onshore oil and gas industry that has happily coexisted with local communities, in some cases for half a century or more. This has been achieved not least because the industry has maintained a good record of environmental responsibility and competence. The existing controls and the application of good operational practice have served us well to prevent pollution from onshore oil and gas activities and to tackle in an appropriate way any problems that emerge.

The Department of Energy and Climate Change assesses as a matter of course whether a company has sufficient funding for its planned operations prior to awarding any licence. It also checks at the drilling stage and, where relevant, at the production stage that the company has appropriate insurance. Similar financial competence checks are also carried out by the Environment Agency as part of the permitting process. In the event of serious damage to surface or ground-water, the Environment Agency and Natural Resources Wales have powers, under the Environmental Damage (Prevention and Remediation) Regulations 2009 and the equivalent Welsh regulations, to serve a notice requiring that the polluter pays to clear up the pollution. If a significant environmental risk becomes apparent, the Environment Agency has the authority to stop the activity. These powers apply to a wide range of operations and activities undertaken by different industries. I do not think that it would be appropriate to create any specific provisions for the oil and gas industry.

However, the Government are aware that there are widely felt concerns about the capacity of companies exploring for shale gas to tackle any liabilities that might arise. This is the concern that the noble Lord, Lord Whitty, is pointing to. Therefore, I am pleased to inform your Lordships that the Department of Energy and Climate Change and the shale gas industry are working to put in place a robust scheme that would cover liabilities even if the relevant operator is no longer in business. They are also in discussion with leading insurers about proposals to build expertise and capacity in the insurance market to facilitate the development of products specifically appropriate for unconventional operations, which in turn could facilitate the development of an industry-wide scheme. In addition, while we already have a robust regulatory framework in place, I can confirm that it will be reviewed and refined as appropriate as we move towards the production phase. The question of the noble Lord, Lord Oxburgh, will be addressed in that process. This regulatory review will include the question of environmental liabilities in the wider sense, not solely relating to water.

I am sure that noble Lords will agree that these two initiatives, taken together, constitute a sensible approach towards ensuring that liabilities are covered in a comprehensive and proportionate way, rather than

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taking what might be a rigid legislative approach on a piecemeal basis. I hope that this news provides the reassurance that the noble Lord, Lord Whitty, needs that the Government are taking the right steps to ensure that liabilities are dealt with appropriately, and that he will feel able to withdraw his amendment.

Lord Whitty: My Lords, I thank the Minister for that. It is a degree of reassurance. I thank the noble Lord, Lord Oxburgh, for expanding the area of concern into the issues of the effect that bringing sea-water on land for use may have on watercourses and the possibility of contamination of the sea-water itself.

There is the potential for such a widespread effect on the water system that I feel justified in bringing this amendment before the House. I am pleased to hear the Minister say that the industry, the insurers and the Government are looking at a scheme. This obviously recognises the very widespread concern in the country about the possible impact of fracking which, he is right to say, is wider than the issue of the effect on the water supply system.

I am still slightly concerned that we might get into a situation where, if the industry develops to the degree that many of its advocates suggest is possible, we end up with a substantial problem—a problem that could end up on the taypayer’s desk or bank account. In the nuclear industry we have provided for such a possibility for current operations, although obviously there is a huge legacy that has not been provided for and a huge bill for the taxpayer as a result. We have done the same on a much lesser scale in relation to landfill. We could probably also establish a regime in relation to fracking to ensure that this liability was covered. However, the Minister has indicated that there is some progress. I will watch this space, as I am sure will others. At this time, I beg leave to withdraw the amendment.

Amendment 154 withdrawn.

Clause 51: The Flood Reinsurance Scheme

Amendment 154A

Moved by Baroness Parminter

154A: Clause 51, page 107, line 7, leave out “and”

Baroness Parminter (LD): My Lords, in the face of the desperate flooding challenges that many in our country are now facing and look set to face in the future, I strongly welcome the proposals for Flood Re, which we are now coming on to debate and which will provide affordable flood cover for all households. My Amendments 154A, 154B, 156A and 156B give Flood Re, which will be a private company in receipt of public money, a duty to act in the public interest and extend its remit to help deliver a more resilient future in the face of flooding, working with other bodies to achieve that where appropriate.

The Flood Re scheme will benefit householders at risk of flooding. However, if flood risk management is not significantly improved over the lifetime of the scheme, we will be in no better a place after 25 years

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than we are now. The adaptation sub-committee of the Committee on Climate Change—and I am glad to see the noble Lord, Lord Krebs, in his place today—in its policy note to the Government last month makes it clear that significant increased investment in flood-risk management is required, as well as in flood defences, if the levels of risk are to be maintained, let alone reduced.

Flood Re could raise awareness of flood risk, direct policy holders to advice and support and, crucially, if sufficient reserves are generated, it could support measures that individuals or groups can take to reduce flood risk. Surplus funds could, for example, pay for property-level measures, such as flood gates and air brick covers, which typically cost £5,000 per property. Government grants of between £2,000 and £4,500 are available, so Flood Re could, for example, meet the difference. It would be a sound investment, given that every £1 invested in property-level protection typically achieves a benefit of £5 or more; or it could contribute towards the cost of Environment Agency schemes that do not justify full government grants under the partnership funding approach. Funding from Flood Re could make the difference between a flood defence scheme going ahead or not, which would be worthwhile if it were to protect some of Flood Re’s highest-risk customers.

To determine what Flood Re could do, it is critical to know how any surplus funds will be defined and what will happen to them. The evidence of a Defra stakeholder presentation on Flood Re, in a slide entitled “Flood Re’s exposure to claims”, gives a median-loss scenario of £65 million in claims per year. That means that it could have at least £100 million in reserves at the end of the first year. Defra’s final impact assessment for Flood Re, in table 5 on page 20, states that, over the life of the scheme, it should on average make an annual surplus of £27 million. This calculation is based on Flood Re’s expected loss scenario which takes account of the low-probability/high-cost flooding that could take place during the 25 years for which the scheme is operational.

Either way, Flood Re is likely to hold significant sums of public money that could be used to help manage down flood risk. This would help save everyone money: high-risk households, other policyholders and Flood Re itself. This could be achieved without the main £180 million levy needing to be increased because it could just be pursued if Flood Re were in surplus. Over the 25-year lifetime, this would make a material difference to the number of homes at significant risk while helping those households secure affordable flood insurance on an ongoing basis once Flood Re is withdrawn. It is therefore important to know how the Government expect any surplus to be defined, in order that it might support such an approach. I look forward to hearing more from the Minister on that in his response.

We need legislation that expresses how Flood Re can help to deliver social objectives without claiming that Flood Re can or should solve all flood risk management issues. I hope that I have made clear what I am seeking for Flood Re to achieve, and the wording of these amendments is an attempt to do just that. I beg to move.

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3.30 pm

Lord Shipley (LD): My Lords, I support my noble friend Lady Parminter and strongly welcome the Government’s proposals on the Flood Re scheme. Getting insurance in high-risk areas is of fundamental importance to the individuals affected; the outcome of the negotiations and planning that have gone into the scheme is very important. All those who have taken part in that should, in my view, be congratulated.

However—I refer here specifically to Amendments 154A and 154B—Flood Re cannot be just about reinsurance: it also has to be about reducing flood risk over time by getting householders who have been flooded and claimed on their insurance and householders who are at high risk to invest in better flood protection. As my noble friend Lady Parminter said, in 25 years’ time we should not be in a position where we have not made any progress in flood protection and end up simply repeating the process. Therefore, Flood Re should not be seen simply as a financial transaction providing a means of reinsuring properties at risk, or deemed to be at risk. We have to go a step further and provide incentives for people to engage proactively in flood risk management. There are clear benefits in this for the insurance industry: better protection will lead to lower total claims. Householders will gain greater security from flooding.

Amendments 156A and 156B—which are intended to be probing amendments—are about the duty of the Flood Re scheme administrator to co-operate with all those bodies that have an existing duty to co-operate under the 2010 Act. It is very important to put this point in the Bill because, as I said, the scheme should not be seen to have just a financial role: it has to be about resilience as well. The introduction of the FR scheme administrator means that strategic interventions can be undertaken. For example, each household in a given high-risk area might be with a different insurance company, so developing strategic solutions involving the insurance industry, which has not so far been possible, now could be. Examples are in data sharing: competition rules have meant that it is not possible to get access to insurance claims data to identify trends in the scale and frequency of flooding. Having this data available through the scheme administrator, alongside public information held by the public agencies and the water companies, could be crucial in making investment decisions to reduce flood risk and, of course, future claims. The FR scheme gives us an opportunity to enable this information to be made available for high-risk areas and we need to make sure it happens as part of this Bill.

My noble friend Lady Parminter referred to the Committee on Climate Change—and we might hear more about that shortly—but the estimate that there could be up to 190,000 homes that could have their flood risks reduced through measures to protect them is a very important factor. Flood Re could be charged with taking a more proactive approach to encouraging and supporting those people in high-risk areas to protect themselves better. As my noble friend Lady Parminter has made clear, there could be systems of loans and investments as well to assist householders.

There is a danger in the proposals in the Bill that people in high-risk areas will simply be satisfied with having secured reinsurance. They might not fully

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understand the benefits of actually undertaking flood prevention work. They may simply end up accepting the reinsurance at the price they have to pay. There is a further factor that not everybody, even in a high-band property, is cash rich. It could be that, for some, the flood protection works that they would have to undertake would be too costly.

The benefits to the insurance industry of all four of these amendments are clear. It should reduce the level of claims it receives, and therefore the cost of that. There is a major gain for individual householders in that they will be encouraged—and able—to secure greater investment in flood prevention works to their properties. Therefore, I hope that the Minister understands, when he comes to reply, that these four probing amendments are all very positive in their approach in that they build on the excellent work that the Government have done with the insurance industry. However, let us work out ways in which we could do a little more to encourage flood prevention to be undertaken, and that greater resilience, as part of the Flood Re scheme.

Lord Campbell-Savours (Lab): My Lords, I, too, am very interested in this amendment, which has been drawn to the attention of people who live in my former constituency, in particular in the town of Keswick, which noble Lords may recall was the victim of substantial flooding a few years back.

I received a letter from Mrs Lynne Jones, the chair of Keswick Flood Action Group, one of the bodies that was established following the floods some years ago. I will read her letter to the House, because it comes from the front of the battle against flooding, from people on the ground who have to deal with this every day. She writes:

“My particular concern has always been that there is no encouragement or independent advice to reinstate properties in a more flood-resistant, resilient manner after a flood. It can be considered as betterment. Insurance companies have to reinstate properties with insulation which satisfies government legislation, whether there was insulation before or not. However, there is no requirement to consider solid waterproof floors as opposed to floorboards or a rewire from the first floor down, or the many other measures which can make flood recovery that bit less stressful, prolonged and expensive should the worst happen”.

In other words, people on the front line in this battle against flooding are now considering to what extent this scheme can be adapted in a way that incentivises investment not just in the solution of the immediate problem but in remedial measures which can affect claims in the future.

Lord Krebs (CB): My Lords, I support the amendment in the name of the noble Baroness, Lady Parminter. As will be apparent, the amendments that I will bring forward shortly are in the same vein. They reflect the points I made in a letter to the Secretary of State on 22 November 2013, in which I said:

“The Flood Re scheme offers the opportunity to strengthen incentives for the uptake of household flood protection measures but it is currently not designed to do this. The consequence is that Flood Re costs will be higher than they need to be, at the expense of householders funding the programme through the industry levy”.

I declare an interest as the chairman of the adaptation sub-committee of the Committee on Climate Change.

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As this discussion has made clear, there is a real opportunity here and this is a helpful and supportive proposal. I will shortly describe my amendment, which would redesign Flood Re to help it, as has been said, to do two things: to provide cover for householders at risk and, at the same time, help to reduce those risks over the years ahead, so that when Flood Re comes to an end householders do not drop off a cliff after 25 years.

Earl Cathcart (Con): My Lords, I am very nervous about these amendments, probing as they are. Flood Re has one aim: to provide flood insurance for those people who cannot buy it at the moment. The first year or two will be very difficult until it has built up its reserves, provided that there are not too many claims in those early years. However, I am very nervous about the suggestion that Flood Re ought to spend money on flood-resilient activities. What happens in 10 years’ time if we have another horrendous year of rain—floods all over the place—and these households go to Flood Re and say, “I’ve now got a claim, will you pay it?”. What happens if Flood Re replies, “I’m so sorry, I have paid it all out on building a dam here and there”? I do not think it is the right answer to get Flood Re to pay money out other than for genuine flood claims.

The Earl of Lytton (CB): My Lords, I have a great interest in this group of amendments. I certainly understand the geometry that lies behind it, particularly that outlined by the noble Lord, Lord Campbell-Savours. I probably follow the noble Earl, Lord Cathcart, in this. As I understand it, Flood Re will have significant start-up costs. Also, the Environment Agency’s investigation and collation of information from the hazard risk assessments, which it is charged with carrying out, will be a draw-down on the Flood Re fund. That means that, in the early years, there may be significant sums taken out of the pot. I understand that the intention is that the Government should put in plan B configurations to deal with that eventuality. However, given the sporadic and capricious nature of severe flooding, we do not have any time to waste in putting measures together to improve resilience and protect properties where they can be protected.

I have a technical interest in this: I am a practising chartered surveyor and property valuer. I am also involved in the parish and town council sector, as is well known. I can see the rationale behind an early start for communities and individual property owners coming together to create robust schemes. We need to do that as soon as the present flood waters have died down, as I hope they will. Time is of the essence, because we do not know when the next flood will come. There is a conundrum between the build up of the pot of Flood Re on the one hand and spending funds on resilience and protection on the other. In a later group of amendments, I will say a bit more about Flood Re, which is intended to cover a very limited and narrow range of circumstances. I will explain why I think a larger problem of an entirely different magnitude is lurking here.

We need to make a start. On the basis that the economy is improving, this is exactly the time when these investments need to be made. I will be very

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interested to hear what the Minister has to say about the pot, how it will be funded and how we get the early years’ work put in place. Like the noble Earl, Lord Cathcart, I obviously would not want to see the pot devoted to one large project to the exclusion of all others. I am sure that would not be the case. If we do not get this right, the credibility of FR is likely to falter. I think that is something on which the Minister can elaborate.

Lord Crickhowell (Con): My Lords, one of the great advantages of modern technology is that you can discover something you did not know anything about while a debate is taking place. As this debate started, I chose to look at a Defra website on obtaining flood insurance in high-risk areas. At the top of the main page, a number of participants are indicated: BIBA, the Environment Agency, Which?, ABI, the National Flood Forum and Defra. Flood Re does not appear there yet. Can the Minister say how far the department has already gone down the road that is suggested here? This website, which contains a great deal of other valuable information on the steps you could, and should, be taking, already exists. Presumably, at some point Flood Re will be fitted into the whole arrangement. My only anxiety about the Flood Re participation is that indicated by my noble friend—namely, that against the present background, I only hope that there is a surplus in the early years because the fact is that we could have a situation whereby, far from having a surplus in the early years, we have a substantial loss. However, as there is a website and as a good deal of advice is being given by the department—I think it is rather good advice—perhaps my noble friend will indicate what the department’s overall approach is and how he sees Flood Re fitting into what is already going on.

3.45 pm

Lord Whitty: My Lords, in her opening remarks, the noble Baroness was correct to set this matter in the broader context of where we are now, and have been in recent years, with instances of serious flooding in Somerset this week, possible serious flooding in Surrey by the end of the day, that which occurred in Keswick not long ago; and the resources that are needed to ameliorate that position in the long term which are, essentially, the resources that the Government are putting in. We will no doubt return to that issue at some stage in these proceedings. However it raises the question of whose responsibility this is. I have slight reservations about these amendments in that regard. The public authorities and the Government have responsibility for ensuring that adequate resources are available for flood defence and catchment management to mitigate the impact of flooding and insurance and reinsurance schemes can help through their normal operations. However, insurers can insist on mitigation or flood recovery measures along the lines mentioned by my noble friend Lord Campbell-Savours as a condition of renewal or extension of policy cover or as a deduction, if you like, from compensation. That is a normal insurance operation.

These amendments seem to be saying that Flood Re would take on some public responsibilities and social objectives and have executive responsibility for

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delivering flood limitation measures. It is important and right that Flood Re should co-operate with the public authorities, landowners and everybody else in this area, so in that sense I support Amendment 156B. However, it is also important that we do not transfer the risk from public authorities and property owners to an insurance system which, at the end of the day, is viable only if it takes a cut from all policyholders, including those whose properties are not at all at risk of flooding.

This is a difficult issue. The noble Baroness referred to public money. In one sense public money is involved because we are legislating for the system and the Treasury will, therefore, regard the expenditure involved as public money, but it is not really public money—it is the policyholders’ money. At the end of the day, you cannot place too many responsibilities on the Flood Re operation when it is dependent on individual households and businesses paying into it for insurance purposes.

It may well be that a surplus is generated and that the assessment of who pays for flood defence is looked at more broadly. Clearly, there are limitations on public expenditure and expenditure on better flood defence and catchment management could be met by those who are the most direct beneficiaries of it. You could argue that insurance companies themselves benefit from fewer claims as a result of more effective flood defence, but that is a slightly wider argument than placing the statutory responsibilities for which these amendments ask on to Flood Re itself. I think that that is slightly going round the back door.

As I say, I am slightly torn on this issue because I agree with a lot of what the noble Baroness and the noble Lord, Lord Shipley, said. However, I think that we would probably place too much responsibility on Flood Re if we adopted all these amendments.

Lord De Mauley: My Lords, I am grateful to my noble friend Lady Parminter for her amendments regarding flood resilience and Flood Re’s role in that matter, and to all noble Lords who have spoken. Regarding Amendments 154A and 154B, I agree with my noble friend Lord Shipley that we need to tackle the root cause of the difficulties with the availability and affordability of flood insurance—the flood risk that households face. The coverage of the tragic events of the past couple of months, which my noble friend Lady Parminter mentioned, have brought the full impact of this home to us all. I thought that the letter read out by the noble Lord, Lord Campbell-Savours, set out the problem very well.

Households benefiting from Flood Re need to understand both their flood risk and the likely impact of the withdrawal, over time, of the subsidy on their future premiums. I hope that noble Lords will be reassured to hear that we have agreed with the Association of British Insurers the principle that insurers will be required to provide such information to customers when a property is ceded to Flood Re and at the point of a claim. I hope that the statutory requirement for the Flood Re scheme to manage, over the period of the operation of the scheme, the transition to risk-reflective pricing of flood insurance for household premises also offers some reassurance.

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The ABI has now come forward with draft proposals for ensuring that the correct incentives are in place to drive uptake of resilient repairs after a flood, particularly for those properties subject to repeat flooding. We are still agreeing the detail of this approach and I hope to have more to say on Report. Encouraging households to become more resilient over the period of the scheme will help to reduce the impacts of subsequent flooding.

Turning to Amendment 156A, the subsection that my noble friends seek to amend has been drafted in such a way to provide firm pointers as to what the Flood Re scheme administrator would need to have regard but is also intended to allow for a degree of flexibility that may be needed as the scheme is finalised. I assure noble Lords, in the strongest terms, that the Government are absolutely committed to taking forward Flood Re, together with the insurance industry, and that both parties are working very hard to achieve this.

We expect the administrator to act responsibly in its management of the scheme throughout its life and we have every intention of ensuring that it discharges its functions in a proper manner, supported by the duties we will place in secondary legislation. The regulations made under Clause 54 will be subject to public consultation and we are currently considering carefully the Delegated Powers Committee’s recommendation that regulations made under this clause should be subject to the affirmative procedure. I trust that this assurance puts on the record our intentions in this regard.

As regards Amendment 156B, my noble friends are right that co-operation between Flood Re and flood risk management authorities will be important, in particular should Flood Re wish in the future to commit any of its resources to supporting flood risk mitigation measures. Clause 54 provides for Flood Re to share information held by it with the Environment Agency, its equivalents in devolved Administrations and any other bodies specified in regulations. It also provides for Flood Re to have a duty to act in the public interest, so where it is in the public interest for Flood Re to co-operate with other risk management authorities, it would be expected to do so.

Under the Flood and Water Management Act 2010, flood risk management authorities have a duty to co-operate with each other in the exercise of their flood and coastal erosion risk management functions. This is because the causes of flooding can cross organisational boundaries and responsibilities. For example, flood risk management schemes to protect one area may make the problem worse elsewhere if there is not a partnership approach to developing solutions. Flood Re will not have an operational role in designing or implementing flood risk management schemes. As I think the noble Lord, Lord Whitty, suggested, that would be beyond the scope of Flood Re and would require different skill sets. Flood Re will therefore not have the same degree of interaction with the risk management authorities that they will have with each other. I am not convinced that there is a need to extend the requirements based upon the Flood Re body.

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Perhaps I may say to my noble friend Lord Cathcart that while directly managing flood risk is not the purpose of Flood Re, it is nevertheless vital that Flood Re does not just deliver affordable flood insurance. It should also contain the right incentives for householders and insurers to put in place the necessary measures to become more resilient, since otherwise the effective price limits in Flood Re may remove some of the financial incentive to take such action. He has suggested—the noble Earl, Lord Lytton, also asked about this—that Flood Re will need to build up its reserves, which is of course right, but it will have access to the proceeds of the levy and be able itself to take out reinsurance. Can I offer to meet noble Lords before Report, on which occasion I shall of course be happy to provide an update? Perhaps I could also address the point made by my noble friend Lord Crickhowell at this stage. I shall come back on Report to noble Lords with more details of how those who flood repeatedly might be treated. For the reasons I have outlined, I hope that I can persuade my noble friend to withdraw her amendment.

Baroness Parminter: I thank the Minister for that helpful response and I thank Members around the Committee who have contributed to this debate. It has helped to spell out in more detail what we are all hoping to achieve for Flood Re. We do not expect it to be able to answer all the social objectives in terms of flood risk management, but we should accept that it is not just a flood insurance vehicle, important and critical though that is. It will also need to provide the necessary incentives to transition to a stronger place in the future. The wording of the amendment may not be ideal, but at least it has facilitated this debate. I hope that noble Lords are not disappointed in my having brought it forward in that light.

I thank the Minister for agreeing to meet noble Lords between now and Report. That will be helpful because there are still questions about the surplus and how it will be defined. The comments made by my noble friend Lord Cathcart and others remind me that we are not guaranteed surpluses with Flood Re; this is only what we are saying if those surpluses are achieved. I am happy to learn that the Minister intends to say more on this issue at the next stage. On that basis, I beg leave to withdraw the amendment.

Amendment 154A withdrawn.

Amendment 154B not moved.

Amendment 155

Moved by Lord Moynihan

155: Clause 51, page 107, line 20, at end insert—

“( ) Within 12 months of this Act coming into force, the Secretary of State must publish and lay before both Houses of Parliament a report on the ability of businesses in areas of high flood risk to secure affordable insurance cover.”

Lord Moynihan (Con): My Lords, I shall start by echoing the view that Flood Re is a welcome scheme, and I congratulate the Minister, his colleagues and the industry on introducing it. The scheme is to be supported

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in principle, but the devil may be in the detail. Other amendments grouped with mine allow the Committee to consider those who will be excluded from Flood Re, their ability to get insurance, and the costs of such insurance. Mine is a probing amendment but, that said, it is important in that it focuses on the significant absence of much-needed support to SMEs in the proposed Flood Re scheme.

Under the current provisions, small businesses of up to 49 employees are covered under the statement of principles. The Bill before the Committee proposes a new scheme, Flood Re, which is substantially built on the statement of principles. However, Flood Re provisions extend only to domestic properties and offer no protection at all to any businesses except a category called “micro-businesses” at risk of flooding. This is a really important distinction between SMEs and micro-businesses. My noble friend the Minister may be able to clear up exactly what that distinction is when he comes to sum up.

4 pm

The critical point that I wish to make is that small businesses are key to economic growth. The importance of flood insurance has been highlighted by recent adverse weather, and removing the protection for small businesses from the statement of principles leaves them vulnerable to very significant increases in insurance premiums and even facing the possibility of being unable to afford flood insurance. This would be disastrous for many small businesses, including the shops battered on so many seafronts recently, village shops and businesses in the heart of stranded local communities. The need for affordable flood insurance in high-risk areas is essential to these small businesses. I urge the Government to ensure that an appropriate form of flood provision for small businesses is available.

Of course I appreciate that businesses reflect a different risk from residential properties and as such Flood Re may not be an appropriate form of protection for them. However, I very strongly argue that some provision in this area is required. Small shops are more vulnerable to the effects of flooding compared to their larger competitors, with fewer resources to fall back on and less power to negotiate insurance provision. Many small shop owners have no greater knowledge or expertise than domestic customers. Small shops are at the heart of many communities. If they recover slowly from flood events, it can have a significant knock-on effect for the wider community. I believe that government-supported flood insurance provisions should cover all small businesses previously covered by the statement of principles, especially those dependent on the locality for trade and which, by their nature, support communities. This view is supported by the National Flood Forum and indeed the Association of Convenience Stores, whose campaign I support. Proposals to exclude small businesses are contrary to other government measures, including small business provisions such as those seen in the energy markets.

As I have stated, I accept that this scheme will cover micro-businesses operating out of domestic premises but not the wider small business community. I am concerned that this decision will lead to small businesses in areas at risk of flood being subject to exorbitant

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costs to secure insurance. The Federation of Small Businesses has recently shown in its research that one in five small firms was affected by flooding last year alone and I am sure that that figure will be seen to have increased recently. The National Flood Forum has argued that:

“Flood Re should cover all businesses run from a home”.

It goes on to argue that:

“Small businesses should be included in Flood Re or alternative provided”.

Equally, the Joseph Rowntree Foundation has emphasised its concern about how repeated flooding could affect insurance premiums for small businesses. It suggests that consideration should be given to the implications of costly insurance for the future operation of businesses in high-risk areas, especially in small communities where they may not only provide an important economic function but are central to the functioning of their community.

Finally, I am pleased to report that London Councils supports this amendment. In some key areas of London, businesses are at risk of flooding as much as households. It is important that small to medium-sized enterprises and third-sector organisations, particularly those at surface level on our high streets, have access to affordable insurance cover. London Councils points out that flooding can devastate the economy of London’s high streets, many of which contain SMEs and charity shops. They are affected by damage not just to property but also to stock, and they can take a long time to recover. The flood hazard and risk maps published by the Environment Agency in December last year show that in the Thames area more than 166,000 non-residential properties are at risk of flooding, nearly 76,000 of which are in London. A significant number of these non-residential properties are small businesses. Bearing in mind all these representations, I beg to move.

Lord Sheikh (Con): My Lords, at Second Reading I welcomed the Bill but outlined some concerns. I am extremely grateful to my noble friend the Minister both for the remarks he made during that debate and for the correspondence I have received since then. Indeed, he was able to alleviate a number of my concerns. However, there is one area where I still have a slight concern, which relates to the effect this legislation will have on small businesses.

At Second Reading I said that since small businesses will be ineligible for Flood Re, they will therefore be afforded less protection than in the statement of principles by which they are covered. In his correspondence to me, my noble friend the Minister said that it was the belief of the Government that there was not sufficient evidence to justify intervention in relation to small businesses. However, I believe that more should be done to protect our valued SMEs, many of which operate under tight budgets and may be unable to obtain affordable flood insurance. My noble friend the Minister has also said that it was his belief that SMEs were more able to protect themselves from flooding. Again, I point to the issue of cost here. Just as many SMEs struggle with the cost of insurance, they also struggle to afford to put in place measures to protect their businesses and livelihoods.

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I welcome the Minister’s remarks that this issue will remain under review but I feel that this does not go far enough. If nothing further can be done to assist SMEs as part of the Bill, the amendment tabled by my noble friend Lord Moynihan could at least assist them in the future. In fact, it would benefit both the Government and SMEs because of the extra clarity it would bring. It would provide a mechanism to formally review the ability of businesses to take action to reduce flood risk and access flood insurance.

The conciliatory manner in which this Bill has progressed is most welcome and I would welcome anything further the Minister has to say on this issue. Again, I support the Bill and would like it to succeed, but suitable measures must be put in place in order that everybody gets the benefit of what we propose to do.

Lord Campbell-Savours: My Lords, I will speak to Amendment 160, in the name of my noble friends Lord Whitty and Lord Grantchester. I intend to speak on a number of amendments so I must declare an interest. I have a leasehold interest, with my wife, in a band G home on the Thames built on the flood plain. My flat is not threatened by flooding. My home has therefore never been evacuated and I have never made an insurance claim on a property I own. Nevertheless, I feel that I have an interest to declare while speaking on an issue that affects tens of thousands of home owners who similarly live in the vicinity of the Thames, many of whom are now being evacuated.

I start by congratulating the Government on introducing this scheme, which I understand was the subject of some very difficult negotiations with the insurance industry. I want to refer to a particular group of home owners, of which I am not one, who come under council tax band H. Council tax band H is pretty expensive property, as we know, and the flooding over the past few days has probably affected thousands of these properties up and down the River Thames between Chertsey and just south of Maidenhead, near Windsor. These home owners will be very worried about what is going to happen. They are excluded from this scheme. Not only do they have the problem of how to resolve their immediate difficulty of dealing with the flooding and the consequences for their homes, but they will also be worried about the longer term financial implications, in the event that their premiums are substantially increased—which they will be. I know that from my own experience in the Lake District, which I mentioned during my previous intervention. For most of my life, I lived there in the town of Keswick, which was subject to flooding. Many people there found it impossible to get insurance from insurance companies following the floods that took place some years ago.

There is going to be a real problem for these people. Many in the Thames Valley are not included in this scheme because their properties fall into band H. It is not that the Government need to interfere with this scheme. I understand its merits and it has been very sensitively negotiated. We very much support it. However, heads have got to be banged together to find a way of resolving the problem of many of these people who live in band H property.

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People may ask what I am doing defending people living in band H properties from the Labour Benches. The reason is simple: many people who live in band H properties did not buy them as band H properties. They bought them when they were much cheaper, and when their incomes may well have been quite modest. Property price inflation in London and in the south of England has placed many people in this position. Even the way that the mansion tax is being construed may affect people who have quite small incomes. I am in favour of the mansion tax, but maybe the way that it is to be calibrated raises the same questions. People on low incomes who find themselves living in expensive properties—I am not one of them, as I said—have to be considered in these matters. I hope that the Government, even as late as this in the Bill, might on Third Reading at least make some statement as to what provision might be made for them, notwithstanding what the Bill provides on Flood Re.

The Earl of Lytton: My Lords, it is probably appropriate that I follow the noble Lord, Lord Campbell-Savours. I have to admit that I live in a band H property, but it is not in London and I am glad to say that it is built on a hill. My Amendments 160ZA and 161D are in this group. I shall be brief, because there is another larger issue that I want to address.

I tabled Amendment 160ZA to see whether I could flush out the rationale behind the exclusion of certain categories of property from FR, but also because there seemed to be a reluctance to consider both sides of the coin in terms of what is in and what is out of the safety net. What is in identifies and underlines what is out. It cannot be otherwise. The fact of exclusion does not mean that other insurers will not provide some cover, but it does, as the noble Lord, Lord Campbell-Savours, said, have consequences. I have certainly received correspondence suggesting some very significant rises in free market premiums based not so much on the immediate severe risk but on that broader category of material risk that will be flagged up and will lie between those that have no risk whatsoever and those that are protected by the FR safety net. It is in the public interest that any scheme report under Amendment 160 should look beyond the narrow scope of FR inclusions and also look at wider exclusions.

4.15 pm

On Amendment 161D, I wanted to raise an allied issue. Part of the problem is that many of the terms in Clause 69 are undefined, “household premises” being one of them. My amendment would simply insert a definition of “household premises”. Paragraph 14 of the 20th report of the Delegated Powers and Regulatory Reform Committee points to the huge amount of detail that is going to be—to put it bluntly—kicked down the road to be dealt with in regulation, probably towards the end of this year. This creates great uncertainty both for this House, in terms of working out what we are legislating for, and for those homes and businesses which may in due course be affected. Uncertainty, as I know as a professional valuer, is corrosive, and particularly so in the present state of flooding and dislocation of households, businesses, services and infrastructure, of which we have heard a great deal. As a factor in risk

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assessment, it is essential to contain it as far as possible. I think that the Government could probably do better on that count because FR is hypothecated on a very narrow basis.

I have already flagged up the issue that I am about to raise with the Minister, and I thank him for his letter to me following Second Reading and for seeing industry representatives last week. The second bullet point in the revised statement of principles states that ABI members will,

“Continue to offer flood cover to existing domestic property and small business customers at significant flood risk providing the Environment Agency has announced plans and notified the ABI of its intention to reduce the risk for those customers below significant within five years”.

The noble Lord, Lord Moynihan, also introduced this point. However, long leaseholds, buy to lets, band H properties and those built post 2009, and small and medium-size enterprise premises fall to be excluded. I assume that they are excluded because there are no government plans to reduce the risk and therefore flood reinsurance cannot underwrite them—that is an assumption that I make. So the many people who thought that FR would ensure future cover for their properties will be disappointed.

I understand that the sustainability of insurance cross-subsidy is an issue, and I do not suggest that this should be perpetuated for any longer than is absolutely necessary—nobody should expect government or society at large to prop up an outdated risk model or practices involving cross-subsidy in the knowledge of much more detailed individual risk. However, this is about a managed transition and it is to the credit of the Government and the ABI that a precipitous withdrawal of flood cover did not occur last summer. However, with the present weather, the exclusions from FR and a lack of clarity over many of the implications of Clause 69 definitions, along with better knowledge— which is always a dangerous thing—we have significant transitional uncertainties. Valuer members of my profession, like me, deal with this sort of thing constantly.

Contrary to what the Defra impact assessment might lead one to suppose, there is no simple gradation of supply and demand via the price system when dealing with risk in property valuation. In the lending world, it is more a case of a simple on/off switch. There are many reasons, but the voluntary banking regulation under Basel III may have something to do with it along with recent memories of toxic loans. I have conferred within my own profession and with the British Property Federation and the Council of Mortgage Lenders. It appears to me that the interdependence of insurance and mortgages is highly significant. Absence of cover for a standard peril, including flood, most probably means no mortgage either.

There is also, of course, the lenders’ ability to look at risk on their own terms, regardless of whether there is an insurance underpinning. It is my belief that, in future, lenders will not be any more indulgent than insurers when it comes to risk, and probably a good deal less so, given the typical mortgage life compared to an annually renewable insurance policy. This becomes akin to what I understand is known as a “red-lining principle”, a term coined in the USA, which the noble Baroness, Lady O’Neill of Bengarve, who is not, I think,

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in the Chamber, pointed out to me a few days ago. Put simply, everything within a red line drawn on a map becomes uninsurable and then unmortgageable; disinvestment, deprivation and decline then follow.

The noble Baroness, Lady Gardner of Parkes, who is also, I fear, not here today, reminded me last week of the effects of lender reticence on high-rise and ex-council flats. Value write-offs in these cases might easily be in the order of 10% to 15% without any other environmental risk. Once property of any kind is in a limited market of cash buyers only and with a material flood risk attached, as we are talking about in this instance, write-downs might easily exceed 30%.

The Council of Mortgage Lenders calculates that 5 million residential properties will fall outside the FR scheme, to which might be added—I am guessing—a million small business premises. If a third of those suffer an average write-down of £100,000 due to being in a mortgage ghetto, the outcomes are substantial. Mr Philip Wilbourn, FRICS, an expert in valuation and environmental risk, considers that direct and indirect write-offs could be trillions of pounds. That is a very serious implication. Even if he is only half right, the Government need to take note. It is enough to affect loan books, investment, pensions, tax yields and overall market and investor confidence. This is also about financial security of households and solvency of businesses.

I do not blame FR, but I do suggest that a more holistic approach is needed if market turbulence is to be minimised. Leaving significant sectors high and dry—excuse the pun—has accentuated what is ultimately a latent problem. Nor do I suggest that FR could ever be expanded to cater for this, so we need to look elsewhere. I have written to the Minister suggesting ways in which potential harm might be mitigated. I suggest that he engages in urgent discussions with professionals and lenders as to how some of the very useful measures in the Bill can be fast-tracked to empower and resource local communities, such as those on the Somerset Levels, and foster more initiatives such as Sheffield’s Lower Don Valley business improvement district scheme. I also think that it is time for a change in the lending and insurance markets. The Government have a role in constructively addressing risk and preventing precipitate and unconstrained damage affecting everyone.

I raise this issue because it seems to me that, although it sits outside FR, it is a matter of very great public interest and very great financial import. I thought long and hard about whether I should raise it in the context of the Bill, but ultimately felt compelled to do so. I do not think it is anywhere near a lost cause, but for the same reasons I gave earlier this afternoon that we need investment to go into resilience and flood protection measures, we do not need the plug pulled on the capital value element of properties at the same time. I hope that the Minister, who I am certain will not be able to give me any very detailed response, if any at all, will take this away and that perhaps some aspects of the Bill can be fast-forwarded, if for no other reason than to bring back confidence, which I fear may soon be in limited supply if nothing is done.

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The Government need to be on the front foot on this—as, indeed, there is every reason to be—in order to make sure that damage, in terms of the perception of what is being done and how all this is being contained and managed, is brought back into a sensible format.

Baroness Parminter (LD): My Lords, I put my name to my noble friend Lord Moynihan’s amendment and I shall speak briefly in support of it.

The Government’s impact assessment on managing the future financial risk of flooding states that there is insufficient evidence of a problem for businesses to get insurance and that there are other market mechanisms for them to get cover. However, the impact assessment focuses on the national impact, whereas flooding affects localities, so it is perhaps no surprise that it did not find that much evidence.

Further, the Government’s position is driven by their recent consultation on the issue, which asked for evidence of a need for a mechanism for small businesses and received a few responses from small businesses, which may well have had other priorities. The ABI has given the Government assurances that the broker community is doing,

“a good job working directly with business customers in getting a good deal for them”.

I contend that it is the Government’s job to insist that there be firm evidence of that, which is what the amendment is intended to deliver.

There are few studies of the impact of flooding incidents in general on business, apart from some by AXA, and they focus on the impact on individual businesses rather than the broader economic resilience of communities in the face of flooding. I could not find any research which looks at the significant impact of flooding on small businesses, which often make up the backbone of the rural economy. It is here that flooding has a huge impact not just on individual families and their businesses but on the complex web of supply and demand chains in the local economy. Ensuring adequate flood cover for small businesses, including farm businesses, is as important as supporting households if we are to protect the overall community resilience of rural areas.

As my noble friend Lord Moynihan said, small businesses were covered by the statement of principles and they were able to get flood risk insurance in the same way as households. Given that Flood Re does not guarantee them that insurance, we certainly need reassurance from the Government that they are mindful of the need for cover for businesses, particularly small businesses, and of their important role in rural communities.

Lord Ashton of Hyde (Con): My Lords, I should declare an interest that I declared on Second Reading, which is that, until June, I was the chief executive of two insurance companies, and I still labour under some residual contract limitations.

There is an overriding need to put in place a workable solution that will, first, solve the most pressing need, which is to address the availability and cost of flood insurance and, secondly, do so in a way that is timely,

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affordable to the insurance industry, secured in co-operation with it and that does not allow government subsidy to create a huge deficit in the scheme over time.

Addressing the issue of small businesses raised by the amendment of the noble Lord, Lord Moynihan, we ought to remind ourselves that the statement of principles only covers the availability, not the affordability, of insurance for those small businesses. It covers only renewal policies, so the policyholder at risk of flooding cannot change insurer, and it does not cover the cost of the policy.

There is also the question of practicality. The introduction of businesses into Flood Re would dramatically complicate the pricing of the scheme, the availability of Flood Re as crucial reinsurance—on which the scheme depends—and, by no means least, the complexity of the internal model, which will have to be approved by the PRA. All the different coverage afforded by business policies, such as business interruption, contingent business interruption and loss of profits, will make the internal model much more complicated compared to what are fairly homogenous homeowners’ policies.

To address the most pressing need as soon as possible in a way that is acceptable to as many people as possible, we should concentrate on the most important issues and leave the Flood Re design as it is.

4.30 pm

Baroness Bakewell of Hardington Mandeville (LD): My Lords, I speak to Amendments 161B and 161C in this group. Although welcoming the introduction of Flood Re and accepting that it is essentially a scheme for domestic premises, I remain concerned about the exclusion of small businesses, especially in very rural areas. I refer specifically to those which are mixed hereditaments. The key question appears to be: what happens to mixed hereditaments in terms of qualifying for inclusion in Flood Re?

There are two scenarios for mixed hereditaments. The first is where the business element is deemed by the valuation to be de minimis. This means it forms such a small part of the overall hereditament that it appears only in a domestic list for council tax. The second is where the business element is more significant, and is therefore liable to both council tax and business rates. If the property does not appear in the waiting list for business rates as well as for council tax, the liable party may qualify for business rate relief. This could be small business rate relief, where it is their only business premises.

I understand that, currently, if the rateable value is less than £6,000 the relief received would be 100%. Rateable values between £6,000 and £12,000 receive relief on a sliding scale. This enhanced small business rate relief scheme has been extended until 31 March 2015, and not beyond that at the moment. The standard scheme allows a relief of 50%. In a rural settlement it might be the case that a village shop or post office is part of a mixed hereditament. In this case it would qualify for rural rate relief. Also, in a rural settlement, a pub with living accommodation above could qualify for rural rate relief on the pub element.

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I am extremely concerned about excluding mixed hereditaments from access to Flood Re. This could have a dramatic impact, not just on the business owner but on those residents who use the business. If that business cannot get flood insurance it may remain unviable and may be forced to close prematurely if flooded. Where, for example, this is the last shop or post office in the village this could have a significant impact on the villagers.

Earl Cathcart (Con): My Lords, I congratulate my noble friends Lord Moynihan and Lady Parminter on tabling Amendment 155, as it has given us a good chance to debate flood insurance for businesses, whether in Flood Re or in another mutual set up specifically. We are all under pressure to include small businesses under the Flood Re scheme. That is quite understandable. If I had a business in a flood risk area, I would want to insure it under the Flood Re scheme. I know that the Association of British Insurers and the Government looked at whether businesses could be included within the Flood Re scheme, but found that it threw up more problems than it solved. This is best illustrated with an example.

I am a free range egg producer on my farm in Norfolk, and when it came to buying insurance for the business, I was presented with a long shopping list of types of cover relevant to my business: property; business interruption; loss of profits; contractors “all risks”; terrorism and malicious attack; livestock, including theft, worrying, death after straying, accidental or malicious death; deterioration of stock, in my case probably due to bad feed or electrical failure; perils and fatal injury; livestock in transit; disease, in my case probably something like bird flu or salmonella; goods in transit; motor, for lorries, trucks, vans or cars; employers’ liability; public liability; product liability or environmental liability; legal and professional expenses.

The list goes on, but I hope that gives your Lordships a flavour of the range of commercial insurance on offer. I, of course, had to cherry pick the cover that was most relevant to me. For instance, I did not buy livestock or goods in transit cover, because this is the responsibility of third parties with whom I have a contract. Also, I have no vehicles in that business, so motor insurance was not an issue. However, salmonella is an issue for my business, but because the insurance is so costly I chose not buy it. I hope that I got that one right. I have to choose not only the type of cover that I think is appropriate to my business but how much cover to buy for each category, the cost and the level of excess necessary to reduce that cost. The excess across my shopping list varies from £100 to £20,000.

Although there are hundreds of egg producers up and down the country with identical businesses to mine, I very much doubt that there is another that has commercial insurance exactly the same as mine. They will all be different, and that is the problem: all businesses, whether a corner shop, a pub, a guest house, a property investment company, a hotel or guest house, a manufacturing company or an engineering firm, will buy commercial insurance to suit their particular circumstances. The whole point of a mutual, whether Flood Re or one geared specifically to small businesses, is that the conditions are common to all. The price, the

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excess, the cover and the conditions must be standardised. This can be done for homeowner insurance—it is pretty bog-standard—but sadly, as I have tried to illustrate, not for commercial insurance. You just cannot standardise it. If it were standardised, virtually all commercial members of that mutual would end up with a policy that did not give them the cover that they wanted.

It would be good if everything could be included in Flood Re, whether owner-occupied houses, rented homes or small businesses, but the line must be drawn somewhere. It has been agreed that those with homeowner insurance, buildings and contents, will be included and that commercial insurance will not be. If I had a property in a flood-risk zone that was deemed to have commercial insurance with it and was therefore excluded from the mutual, I would ask my broker to split my insurance cover into two separate policies: one for the bog-standard homeowner cover, buildings and contents, to ensure inclusion within the Flood Re scheme, and the other to include all elements that made my cover commercial, such as owner’s liability or public liability cover. That might be a way forward for many of those finding themselves excluded from the Flood Re scheme because of the commercial element of their policy.

Flood Re will help up to 500,000 homeowners who cannot currently buy flood cover, but I am sure that with a little bit of inventiveness, many, although I am afraid not all, small businesses, including buy-to-let and leasehold properties, can buy their insurance in such a way as to be included in the scheme.

Lord Whitty: My Lords, my noble friend and I have two amendments in this rather complicated group. The group as a whole is beginning to get us into the area of who should be in and who is out of Flood Re, and we have some groups of amendments later that touch on the same issue. Before the Bill leaves this House, we must be clear who is in, who is out, and why.

My Amendment 160 would require the Secretary of State to report on the numbers of properties in flood-risk areas that were eligible, and those that were not, for inclusion in Flood Re. It would include looking at the specific exclusion as it stands of council tax band H and post-2009 new build. The report would look at how much it would cost to bring them in and who would bear the cost if they were brought into Flood Re, in terms of both premiums and the effect on the non-risky properties’ cross-subsidy.

We all have some sympathy with those groups that are excluded. However, we must be careful, as this is a delicate arithmetic deal between the Government and the ABI. I understand that negotiations were hard and long. As far as businesses are concerned, it is obvious that this must be addressed somehow. We have all seen the effects of flooding in recent weeks and the past few years, on small businesses and farms, on the Cockermouth high street a year ago and on the seafronts at Dawlish and Aberystwyth in recent weeks. We also know that the businesses that are hit—the shops, boarding houses and small businesses—are key to the prosperity of those local economies. It must be frustrating for small businesses, and those advocating their case, like the federation, because they were covered in some way

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under the statement of principles under the old scheme. However, the old scheme was a different sort of scheme. It was a deal struck by the ABI, agreeing that it would continue to cover—even then, it was not offering new cover—small businesses as well as households if the Government committed themselves to a certain level of expenditure on flood defence.

This is a different sort of deal; it is actuarially based. While we have all received representations on behalf of businesses, the approach now has a different basis. Even so, it is complicated. Some micro-businesses operated out of the owner’s house could be covered because they pay council tax rather than business tax. However, others will not. There are good reasons for this. The noble Earl, Lord Cathcart, described the bespoke way in which businesses negotiate their insurance as distinct from the more generalised way in which households are covered. It is difficult to see how businesses could be included in Flood Re as it stands without serious reconfiguration of the whole arithmetic. Therefore, while I have sympathy, I would not go so far as to press the Government on this front. However, I am in favour of knowing more about this. Therefore I support the proposition of the noble Lord, Lord Moynihan, that we look at this and report on it and see whether that might lead us to some other form of provision in parallel with Flood Re.

Some of the other boundary issues are even more complicated, particularly in relation to leasehold properties and the issue of whether landlords and tenants are included. The noble Earl, Lord Lytton, has dealt with one element of this and others are dealt with later on. Some of the government literature refers to leasehold properties. However, in general, the ABI and the Government do not think that leasehold properties are included. The situation with single landlords and tenants is not clear, although commercial providers of leasehold property are not included. The differentiation here is more the nature of the insurance than the nature of the property. While the property may be defined as being in risk or not, in a landlord/tenant situation, the tenant probably takes out the contents insurance, which is covered, whereas building insurance, which is the landlord’s responsibility, is not covered. That is quite a complex position, and it would also be true for multiple leasehold property. A future mortgage on such property is dependent to some extent, as the noble Earl, Lord Lytton, said, on there being ongoing insurance on the property. Leaseholders and the owners of the property may be faced with a double whammy if they are not careful.

As I said, I am not in favour of widening the group at this time because of the delicate arithmetic involved. We must address some of these issues in the Bill but for the moment I cannot support the amendments proposed by the noble Earl, Lord Lytton, nor the proposals of the noble Baroness, Lady Bakewell of Hardington Mandeville, on mixed hereditaments. I am not sure whether Amendment 160A in the name of the noble Lord, Lord Shipley, which would effectively delete the exclusion of post-2009 properties, is in this group. That is in a rather different category because people have been building in high-risk areas when they have known that they were going to be excluded under

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the old agreement, let alone the new one. I therefore have less sympathy for that group than I might have for the others.

4.45 pm

We need to be clear about who is in and who is out. If we include any others, we have to understand the cost and who will bear it. The cross-subsidy for those who are not involved at all is an issue. I know that the insurance industry and the Government say that there has actually been cross-subsidy for ever, but nobody knew that before. Now that it is explicit, the Government have to be careful if they are going to accept some further risk which increases the costs, which people who are not directly involved might not be prepared to pay, whatever sympathy they might otherwise have.

The amendment of the noble Lord, Lord Moynihan, on businesses and my amendment on looking at the cost as well as the numbers of properties excluded would be helpful in informing future debate in this area. Meanwhile, my Amendment 161 provides for an appeals system. It is not for an appeal about whether you should be included at the beginning; it is not about whether band H should be included or not. It is about subsequent developments which might exclude people who initially appeared to be included in Flood Re, but were for one reason or another excluded. That can happen for a number of reasons, because either the flood risk or the actual incidence of flood has increased and therefore premium arithmetic changes; or it could be the situation I described in the previous amendment: the insurance company insists on mitigation provision as a condition of renewal of the policy but the policyholder feels that they are unable to meet that cost and are thereby excluded. That may or may not be justifiable in any particular case, but a system which is being legislated upon by Parliament has to have some element of natural justice built into it. Therefore, some form of appeal is needed in this whole range of provision. I hope that the Government can accept my Amendment 161, or at least provide something similar to it.

Lord De Mauley: My Lords, I recognise the high degree of interest in the policies that will be covered by our proposals, and those which will be out of scope. I hope that I can provide some clarity today on what is intended and the reasons for this.

The Flood Re proposition we are debating today was carefully designed to address specific, medium-term issues in the domestic insurance market. It was not, of course, designed in light of the immediate crisis that we are facing. I heard the passion and concern from your Lordships last week, yesterday and, indeed, today, about the specific, frustrating issues affecting the broader community, including small businesses and the farming industry. It is clearly a distressing time for many, and I know that they are in all our thoughts. Again, I pass on my thanks to the Environment Agency, the emergency services and the many volunteers, including the churches, who are working tirelessly to help.

However, it is not immediately apparent that there is an insurance angle to the current situation. Those who have insurance will be covered by their insurer. I am grateful, too, for the efforts of the insurance

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industry, which has been working hard in communities to ensure that damage is assessed and that claims are paid quickly. Until Flood Re is in place, insurers will continue to provide insurance cover. We have no understanding with the industry about expanding the scope of the scheme. I therefore ask that your Lordships forgive me if I combine my response to this debate to the specific proposition before your Lordships today.

I turn first to Amendment 155 of my noble friend Lord Moynihan, which would require the Secretary of State to publish a report on the ability of businesses in high flood-risk areas to secure flood insurance. I emphasise that decisions about the scope of Flood Re have been evidence-based. Compared to the household sector, there is not the same evidence of market failure in the commercial sector, where the insurance market is different. Bespoke policies are more routine—as my noble friend Lord Cathcart so eloquently explained—and they are already priced to risk. I listened with interest to what he, my noble friend Lord Ashton, and the noble Lord, Lord Whitty, had to say.

Businesses, unlike households, have a de facto income stream to cover their costs and can offset the cost of their insurance for tax purposes, so they are different. Flood Re, I emphasise, is concerned with helping to protect those relatively few low-income households from high insurance premia. My noble friend Lady Parminter was, perhaps, sceptical of the suggestion of a lack of evidence. A government survey of more than 9,000 businesses in England estimated that fewer than 1% of businesses had experienced difficulty obtaining property insurance in the last year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.

For these reasons, we do not think that Flood Re would be the right solution for this diverse sector. While there does not appear to be a systemic problem with small businesses being able to obtain flood insurance—and our public consultation endorsed our approach—I recognise that some in areas of high flood risk may face specific issues. As my honourable friend, the Parliamentary Under-Secretary of State for Water, Dan Rogerson, said in Committee in the other place, the Government and the Association of British Insurers have both committed to monitoring the market for flood insurance, including that for small businesses. If sufficient evidence emerges of a problem for businesses, then we have both agreed to look at possible solutions. This research will be published and I will be happy to place a copy of that report in the Library when it is published.

Amendments 160 in the name of the noble Lord, Lord Whitty, and Amendment 160ZA in the name of the noble Earl, Lord Lytton, seek to require the Secretary of State to prepare and publish reports on the numbers of properties which would be out of the scope of Flood Re, including properties built after 1 January 2009, band H properties, leasehold properties and private rented properties. It is very clear from his amendment that the noble Lord, Lord Whitty, has clearly understood that any increase in the amount of policies ceded to Flood Re would need to be funded by others. Indeed, he explained that in his speech on the amendments. It is important that helping households at high risk does not lead to price rises for others.

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My honourable friend the Parliamentary Under-Secretary of State for Water set out indicative numbers and costs for including in Flood Re band H and equivalent properties and properties built after 1 January 2009 in a letter to the Committee examining this Bill in the other place. I would be happy to ensure that this letter is made available to noble Lords who have participated in this debate today. However, I would not want noble Lords to think that the impact on the levy is the only reason for post-January 2009 and band H or equivalent properties being ineligible. As I noted, we were very clear in designing Flood Re that we wanted to target the benefits where they were most needed, while not increasing the cost of living for those not at flood risk. That is the basis on which we made the decision that it would not be justified for band H and equivalent properties to be included.

According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in band H properties and hold a combined insurance policy are in the top 30% of earners, with 48% in the top 10%. More significantly perhaps—and this is in response to the noble Lord, Lord Campbell-Savours—only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas.

The 2009 cut-off date recognises that new housing developments should be located to avoid flood risk; or where development in a flood-risk area is necessary, they should be designed to be safe and appropriately resilient to flooding and not to increase flood risk elsewhere, in line with the national planning policies in place. This date therefore reflects the fact that homes built since then should already be insurable at affordable prices.

As noble Lords may know, when the agreement between government and the insurance industry, known as the statement of principles, was signed in 2008, it was agreed that there should be a cut-off date, which was set at 1 January 2009. That marker has been in operation for several years and has been maintained under Flood Re proposals. To be clear, there has been no change in policy. Therefore for the reasons that I have set out, we believe that the proposed exclusion of properties built after January 2009 and band H properties is fair and in line with the Government’s objective.

Lord Campbell-Savours: I just want to press the noble Lord on band H. As I said, I myself have no interest in it. However, in light of what has happened in the Thames Valley, is there not an argument for reviewing those figures that the Minister has just given to the House, particularly as regards the percentage of people on lower incomes who by chance happen to live in those rather expensive properties?

Lord De Mauley: I am of course quite happy to review the figures and to write to the noble Lord on that.

On Amendment 160ZA on reporting on leasehold and private rented sector policies, I see that we will also discuss the proposals in this regard on Flood Re later on today. However, before I come on to the specific subject of reporting, I remind noble Lords that the key issue in determining the scope of Flood Re is

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whether the policy for a particular property is treated as commercial or residential by the industry. Commercial policies are out of scope of Flood Re, which is designed to support households. We believe this approach is fair and practical, and it was supported in the public consultation. However, we recognise that the leasehold sector presents a more complex situation, where the contents policy is classified as domestic but the buildings policy could be classified as either commercial or domestic and could cover multiple dwellings.

I have listened to representatives of the property sector who have come forward with concerns about the impact of the proposed approach on the leasehold sector. They highlighted in particular that those in a smaller building might find it difficult to afford cover in the open market. The ABI has assured me that there is no evidence of a systemic problem with freeholders being able to obtain insurance for their leasehold properties, which I am sure noble Lords will agree is very welcome. However, given the strength of feeling on the matter, particularly in light of the ongoing extreme weather conditions, we need to take time to consider it in more detail, although without evidence of market failure it will be difficult to justify action. We will examine the evidence further with the ABI and hope to provide an update on Report. We will also continue to monitor this sector over time, as a part of the commercial insurance market.

I will focus briefly on the subject of the private rented sector. I take this opportunity to explain that it is proposed that buildings insurance cover for landlords would be out of scope for Flood Re, although contents cover for tenants would be eligible. At this stage I reiterate my declaration of an interest as owner of a property that flooded in 2007. The reason that landlords’ policies are out of scope is primarily because insurers classify all types of landlord insurance as commercial business, while Flood Re is designed for the domestic market. However, it is also important to recognise that the inclusion of landlords would effectively mean that people who do not own their own home could, through their contents premium, subsidise people who own several.

Flood Re targets support towards those least able to pay, through council tax bands. A landlord’s ability to pay cannot be judged against the council tax band of the property he lets. For example, the landlord of a council tax band A property could receive the maximum support if landlords were to be included, even if they were perfectly able to pay. Landlords already benefit from tax relief on the cost of their buildings insurance policy. They can offset many of their costs through taxable allowances which can significantly reduce their tax bill.

5 pm

Returning to the subject of reporting on the availability of affordable insurance for this sector, I should like to point out that the insurance industry is clear that the majority of landlords would be able to find a more competitive rate outside Flood Re. However, as is the case for the rest of the small business sector, the Government and the industry will continue to monitor the situation. I hope that this provides reassurance as to our intentions in this regard.

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Lastly, I turn to Amendments 161B and 161C in the name of my noble friend Lady Bakewell and Amendment 161D in the name of the noble Earl, Lord Lytton, to Clause 69, the purpose of which would be to define all mixed-use properties as household premises for the purposes of the register under the flood insurance obligation, the Government’s fallback policy. This could include a very large range of premises, including many that are beyond the scope of the policy intention. The broad intention is that eligibility for inclusion on the register for the purposes of the flood insurance obligation would be based on publicly available data about the level of flood risk.

I remind noble Lords that the criteria for inclusion on the register for the purposes of the obligation are different from the eligibility criteria for Flood Re, and therefore some of the exclusions and inclusions may be different. Where Flood Re considers eligible policies, the obligation would be based on eligible properties. The intention is to use the same definitions where possible, but these also need to be consistent with the criteria used for defining domestic properties by the administrators of the register, the Environment Agency and its counterparts in the devolved Administrations. Before regulating under the Bill, we would need to consult fully on the definitions and any possible exclusions, not least to ensure that they are clear and can be consistently applied across the UK.

The Delegated Powers Committee has recommended that these definitions be subject to the affirmative procedure and we are carefully considering this recommendation. I hope this reassures noble Lords that, should the flood insurance obligation ever need to be used, the definitions would be subject to appropriate scrutiny, and that their amendments are not necessary.

Understandably, there has been much interest in those who may not benefit from Flood Re or the obligation. However, we must not lose sight of the hundreds of thousands of householders who will benefit. The Government are satisfied that, overall, the proposed approach is fair and targeted towards those most in need of support. However, it is always important that the effect of any policy is reviewed as time goes on. That is why we have committed to monitoring the market over time, and to publishing these findings. Should the evidence point to a specific issue for domestic household insurance, we will discuss with the industry what might be possible.

Turning to Amendment 161, I recognise noble Lords’ concern that Flood Re should help households at high flood risk. To ensure value for money, should households with policies in Flood Re flood repeatedly and not take action, their continuing eligibility to benefit from the public subsidy provided by Flood Re may need to be considered. Constructive discussions continue with the industry on how those who may over time make themselves ineligible for further public subsidy should be treated.

It is important that there should be a challenge mechanism if an individual exclusion from Flood Re were unjustified. I can confirm that the Government will not designate the scheme until we are satisfied with the industry’s proposals. These could include the need to have in place a proportionate challenge mechanism

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for any households that are deemed to have become ineligible. The regulations setting up and designating Flood Re will be subject to public consultation and we are currently considering the Delegated Powers Committee’s recommendation that regulations made under this clause should be subject to the affirmative procedure. However, Flood Re is not a compulsory scheme and insurers may choose whether or not to cede the flood risk element of policies to it. Householders should, therefore, continue to shop around to get the best deal.

Moreover, it is important to recognise that the relationship between the insurer and the householder will not be affected by the introduction of Flood Re. Under the current regulatory regime for financial services there exists a conduct of business regulator, the Financial Conduct Authority, and a separate complaints-handling service, the Financial Ombudsman Service. The Financial Conduct Authority sets the rules regarding the treatment of customers, the behaviour of firms and the functioning of the market. The Financial Ombudsman Service is an independent entity that makes a judgment against these rules should an individual consumer have a dispute which they cannot resolve through contacting their insurer. I will be meeting noble Lords before Report and will be happy to provide an update to them, and I will come back on Report with more details of how those who flood repeatedly might be treated.

I shall address some of the questions that noble Lords asked. My noble friend Lady Bakewell asked about mixed-use properties—mixed hereditaments. Under the ABI’s proposed approach, mixed-use properties would be out of scope for buildings insurance although contents cover for domestic homes in the property would be included. However, as with other commercial policies, these tend to be priced to risk and do not have the same systemic issues that residential policies may face.

The noble Earl, Lord Lytton, raised a number of issues. I have mentioned several times the report of the Delegated Powers Committee. I am grateful to that committee for its work and welcome its scrutiny of the Bill. It reported at the end of last week and we will respond to its report before Report. We will consider very carefully each of its amendments and, of course, respond accordingly.

The noble Earl, Lord Lytton, asked about definitions. We recognise the desire to give greater certainty about what is meant by the terms in the Bill, but believe that this needs to be balanced with the further public consultation which is intended. Specifically for those terms relevant to the Flood Re scheme, a number of areas of detail relate to the arrangements under which insurance contracts are written by the industry.

The noble Earl also asked a question related to mortgage availability, and I am grateful to him for raising it. We have always been clear that Flood Re is a transitional measure aimed at smoothing the move to an open market over the lifetime of the scheme. If property owners do not take action to lessen the impacts over this period, it is likely that they could face higher premiums when the scheme comes to an end. Adjustments in asset prices and mortgage decisions

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that are based on them will be a necessary part of this transition. I appreciate that the noble Earl thinks that Flood Re may not be the place to deal with this and I am very happy to continue discussions with him on that matter.

For the reasons I have set out, I hope that my noble friend will withdraw the amendment.

Lord Oxburgh: Before the Minister sits down, I hope he can help me with a small matter, which nevertheless would be significant for a minority. Given the duration of the scheme, there is likely to be a rebanding of council tax during that time. Somewhere it needs to be made explicit what will happen to people who move up into, for example, band H during that time.

Lord De Mauley: I can count on the noble Lord to think of something that I did not arrive in the Committee equipped to answer. If I may, I will write to him.

Lord Moynihan: My Lords, I am very grateful to noble Lords on all sides of the Committee for the interest they have shown in this issue. Their contributions have demonstrated how critical it is and what should be in and what is out. I place on record my thanks to my noble friend the Minister for a very comprehensive reply on a lot of issues that have been raised on all sides of the Committee. The noble Lord, Lord Campbell-Savours, is a noble friend on this issue since I am in complete agreement with him. I do not agree with him on every occasion but I certainly do on this one. I say to him that it is not just that some householders did not buy their properties as band H properties; it is that there is no absolute correlation between personal wealth and band H occupancy, a point that I sought to demonstrate at Second Reading. If you accept that principle, surely it is wrong that band H should be automatically excluded. Indeed, the Minister, in his reply, mentioned the 45 properties that were in need of support; that is, owned by people who were not wealthy but would be automatically excluded as the Bill is drafted.

My noble friends Lord Ashton of Hyde and Lord Cathcart mentioned how complicated it would be to change the Bill to take appropriate care of small businesses. I agree that the Bill is complicated; it is complicated throughout. However, surely the thoughts of this House are with the SMEs, the pubs, the guest houses and the farms that have been devastated by the recent floods and cannot now secure affordable insurance provision. They have been hit incredibly hard. If it is not through Flood Re, surely we should be looking to deliver support for SMEs through an appropriate provision. I argue that the Bill is the right vehicle to do that.

I appreciate that my noble friend Lord Cathcart was eloquent in the detail he went into to secure his insurance for his egg business—or “an” egg business, to be fair to him. Such expertise cannot be expected to reside with every publican or small business at the centre of communities serving important commercial and social roles. We should look very carefully at this matter at a later stage.

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My amendment simply allows us to study that in detail. I am very grateful to the noble Lord, Lord Whitty, for his support. I am also grateful to my noble friend Lord Campbell-Savours for highlighting the fact that this market will have markedly changed in the past three months. Of that, there is no doubt whatever. It is incumbent on your Lordships’ House and the Government to look at the extent to which that market has changed and to which we need to respond to those market changes.

While I hope that further consideration will be given to these issues—I, for one, will seek to bring them back for further consideration—for the time being, I place on record again my thanks to the Minister for his answer and beg leave to withdraw the amendment.

Amendment 155 withdrawn.

5.15 pm

Amendment 155A

Moved by Lord Shipley

155A: Clause 51, page 107, line 20, at end insert—

“( ) Within 24 months of this Act coming into force, the Secretary of State must review the effectiveness of the delivery of planning policy in achieving low levels of flood risk for new developments by examining—

(a) the system of planning policy delivery,

(b) the role and effectiveness in reducing flood risk of those organisations with a duty to cooperate under the Flood and Water Management Act 2010, or their equivalents in the devolved administrations, and

(c) the effectiveness of the delivery of the National Flood Management Strategy.”

Lord Shipley: My Lords, in 2008 when serious flooding hit Northumberland, parts of Newcastle and several parts of the north, and 1,000 people had to be moved out of their homes in Morpeth, it was a major learning exercise for the statutory authorities; that is, the Environment Agency, Northumbrian Water, the local councils and the emergency services in particular. It was a major learning exercise because they had to respond properly and to work well together in the public interest.

In the years leading up to the 2010 Act, I wondered how much of a help that would be in defining the duty to co-operate to make sure that all the agencies involved in dealing with flood and flood risk would manage to work effectively together. In the main, that has happened, although in Somerset it has become unclear whether that duty has worked effectively, given the Environment Agency’s statement that it offered to dredge on the Somerset Levels if other partners joined it. I do not have all the details but I raise the point simply to demonstrate that the duty to co-operate between the agencies matters very much.

This amendment asks for a review within 24 months. Given the changes in flooding patterns around us, we need to be clearer about how the planning and risk management systems are working in practice. The amendment would enable a review of the effectiveness of the delivery of planning policy in achieving lower levels of flood risk for new developments by examining,

“(a) the system of planning policy delivery,

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(b) the role and effectiveness in reducing flood risk of those organisations with a duty to co-operate … and

(c) the effectiveness of the delivery of the National Flood Management Strategy”.

It means that we have to confirm, and regularly reconfirm, the capacity and performance of all the organisations involved in reducing flood risk. These will include developers, local government officers and their planning committees, building contractors and building inspectors. We should also look at how national organisations, which have a tendency to be centralised, work effectively with local knowledge, and how that local knowledge is incorporated into the decision-making processes of the national agencies.

I understand that there have been instances where properties built since 2009 have flooded or caused other properties to flood. We need to know better than we do how big a problem this is, how often the flooding was due to flood waters exceeding the risk anticipated, and how often it was due to poor design or poor construction.

I was somewhat concerned to discover that the Environment Agency comments only on larger developments. It is understandable why that is the case, but in 2012-13—here I am quoting from DCLG statistics—local planning authorities received 455,500 planning applications and the Environment Agency provided responses to 30,251 of them; that is, 6.6% of the total. Obviously, most planning applications are small ones in which the Environment Agency need not have a role. However, we need to be clear whether the Environment Agency should have a formal, statutory consultation role in more planning applications than is currently the case. The current position is that the bulk of applications, including those for high surface water flood risk areas, are being dealt with entirely by planning committees and their officers, who follow national guidance. One assumes that they follow that guidance, but it also means that the cumulative impact of many small developments is not commented on and may not be taken into account. There is a further issue. At a time of reducing resources in local government, is everyone confident that all councils have the technical expertise to handle the complex drainage issues that arise? The Government need to be certain that they have all of the evidence they need, and therefore a review within 24 months should be undertaken.

I want to make a last point. I am concerned that we may be being too ambitious for sustainable urban drainage systems schemes. I understand from a press report I read a couple of days ago that 10% of the homes now being built are on flood plains. Of those, 1% to 2% are in high-risk areas. If the right preventive measures are put in place, which can include such schemes, it is not necessarily a problem that 10% of new homes are being built on flood plains. However, an important statement of the obvious is this: SUDS do not work on flood plains when there is substantial flooding. I guess we all know this, but I am concerned that there is a cumulative impact on planning permission for small developments; or, rather, I would like to be convinced that that is not the case. I would like to be certain as well that there is not an overdependence on SUDS schemes being seen as a solution to the problem when they may well not be.

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This is a probing amendment, and I hope that the Minister will agree that it is important that, within 24 months, there should be a review of planning policy and flood risk management and delivery, and that two years is really the maximum period within which that should be undertaken, particularly in view of current circumstances. I beg to move.

Lord Campbell-Savours (Lab): My Lords, I intend to use Amendment 155A as a peg for discussing what is described—in paragraph (c) of the new subsection that the amendment would insert into Clause 51—as,

“the effectiveness of the delivery of the National Flood Management Strategy”.

In particular, I want to highlight limitations on the current arrangement under that strategy and how those could be modified. I shall draw on a particular example by praying in aid a particular case.

In 1990, Thames Water proposed a reservoir in Oxfordshire. Its plan set out how the company could meet demand up to the year 2015 for water supply in the south-east of England. Its proposal was for a reservoir on land south-west of Abingdon in the Vale of White Horse. In 2008, some 18 years later, Thames Water held a consultation on its draft water resource management plan for meeting water demand up to 2032. The draft plan again included a proposal for the Abingdon reservoir. If it appears that I am speaking slightly obliquely to the amendment, I am sure that noble Lords will soon recognise the relationship between what I have to say and the amendment on the Marshalled List. In 2009, following a process of consultation, the management plan from Thames Water was amended and the reservoir reduced in size, and in 2010 there was a public inquiry. In March 2011, the Secretary of State, Caroline Spelman, announced her decision to remove the proposal for a reservoir at Abingdon from the management plan. The reasons were, primarily, that Thames Water could not prove a risk to current water supplies and, secondly, that insufficient consideration had been given to transfer and reuse schemes.

It was argued that water available in other parts of the United Kingdom could be transferred to the south-west of England, although when I was doing a little research on this last week I could not understand how it was impossible to prove that there was not a risk to the water supply in the south-west of England when over a number of years, certainly in the early 2000s, we were being told that reservoirs were empty almost throughout the United Kingdom. There were blocks on the use of water for gardening, and I understand that in some areas there was even talk of introducing standpipes for the water supply. Nevertheless, that was the decision taken at that time by the Secretary of State. I suspect that there was more nimby in the decision than a proper evaluation of water supply and demand. I understand that the next review is due in 2018-19.

Why is all this relevant? To answer that question, we have to move north to Cumbria, to Thirlmere. Thirlmere supplies water to Manchester. Thirlmere is a reservoir above the town of Keswick—where I have lived most of my life—which feeds water from the dam down the Greta river through Keswick, down through Bassenthwaite Lake, down the Derwent and on to Workington, which

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was the subject of substantial flooding some years ago. After that flood event some years ago, I was asked to set up a group in Keswick to hold discussions with the Environment Agency and United Utilities on what action could be taken to reduce the incidence of flooding in Keswick. Our group’s case was simple: Thirlmere could be used for flood alleviation purposes as well as for water storage. If we retained within Thirlmere sufficient unused water storage capacity, in times of predicted heavy rainfall we could use the reservoir to control the flow of water into the Greta through Keswick and substantially reduce the incidence of flooding in the Keswick area.

In the beginning, United Utilities resisted because it meant the release of its valuable asset—water. However, over time it adopted a more reasonable approach and agreed to reduce the level of the reservoir in the months of high rainfall, primarily in the autumn, winter and early spring. We set target water levels for each month in the meters below the spillover at the head of the reservoir and the dam head. When the reservoir is too full, water is released. Many people in the town believe it has served the town well and avoided substantial flooding over recent years, despite the fact that on occasions they have had trouble releasing sufficient water due to mechanical release valve difficulties.

Let us return to Abingdon and what has happened over the past week in the Thames Valley. I refer again to the interest I declared earlier. Why can we not have a similar arrangement for Abingdon? Why can we not bring back the proposal for a reservoir on the Abingdon site with a dual purpose? The first would be water storage to meet increased demand in the south, and with the proposed development of new towns in the south that is part of the Government’s housing strategy, there will be increased demand—indeed, at the moment demand in drought periods is not being sufficiently met. Secondly, the reservoir could be used for flood alleviation purposes, with target storage levels providing for controlled releases into the River Thames.

Let us go back to the Thames Valley. The communities that have suffered over the past week know that there is no way of resolving their problem in the long term. You cannot build defences along the Thames on the scale necessary to protect the towns and villages—Wraysbury, Datchet, Chertsey, Staines, Sunbury and all those towns; it is impossible. We have to find a solution further up the system. I have raised this in relation to this amendment because I believe that the solution is to create large areas that can be pooled and used for flood alleviation in the future.

It seems to me that to secure that objective, the law needs to be reviewed. We need to strengthen the hand of those who wish to use reservoirs in this way. As I understand the current statute, there is no statutory requirement—a power available to the Environment Agency or to the Government—placed on water companies to use their assets in the way that I suggest. I hope that what I am suggesting today is followed up in the communities that have been affected over the past week by this vast, insuperable problem of flooding, because they need to look long-term as to what the solution is, and the solution is not in flood defences. The solution is upstream. I hope that they follow up my suggestions. In Abingdon there will no doubt be

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some difficulty over the proposal, but we all have to stand together to find ways to resolve the problem. Unless it is dealt with soon, it will have calamitous implications for the future.

5.30 pm

Baroness Parminter: My Lords, briefly, I support my noble friend Lord Shipley on this important amendment. We are rightly spending the majority of our time today discussing a financial vehicle to deliver affordable flood insurance, but the planning system has a vital role in making our country more resilient for the future. On the potential effects of cuts in local authority budgets on their ability to undertake their important planning functions, which my noble friend mentioned, I add that a review in 24 months’ time is sensible, given that in the intervening 24 months there will be further significant cuts to the Environment Agency’s budget, with an expected cut of more than 550 staff.

Given the scenes we have seen in recent days, it would be only too easy for people, rightly, to make the case that we must protect front-line staff in the Environment Agency. However, it is equally important to look appropriately at people in the back room who are working hard on the consultations on significant planning applications for developments of more than 10 houses or one hectare. Equally, it is important that the national flood management strategy, which the EA devised in 2011, is carried forward.

I add my support. The timeline that my noble friend Lord Shipley has suggested of 24 months is apposite given the need to review some of the resource constraints that both local authorities and the Environment Agency will face in the forthcoming months.

Lord Krebs: My Lords, I too support the amendment of the noble Lord, Lord Shipley. I have already declared an interest as the chairman of the adaptation sub-committee of the Committee on Climate Change. The sub-committee has a useful data set that could be brought to bear were this review to happen. It has developed a set of indicators, which are published, for the resilience of planning decisions in relation to present and future risks from flooding, particularly from future impacts of climate change. For example, it has looked at the implementation of SUDS, at the implementation of household measures that could provide protection at the individual property level and at planning decisions to develop in the flood plain. As has already been said by the noble Lord, development in the flood plain has been going ahead faster than development elsewhere, but this is not necessarily a bad thing. If the properties are appropriately protected, either by community-level measures or by individual household measures, the risks can be managed. The sub-committee has a data set and a set of indicators that could be useful were the Government minded to accept the amendment moved by the noble Lord, Lord Shipley.