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Mr Ben Bradshaw (Exeter) (Lab)
I will outline for the benefit of the Minister, who, I am sure, has already been very well briefed about the subject, some of the background. I then have a number of questions for him. If he cannot provide me with answers at the end of the debate, perhaps he could write to me over the next couple of weeks with the responses.
Over the past few decades, we have been incredibly lucky in Exeter to have benefited from excellent flood defences, which were constructed following two devastating floods that took place in quick succession in the early 1960s. Thousands of households and businesses were flooded out in my constituency. Those flood defences are a wonderful resource for the people of Exeter, who use them to walk on and walk their dogs. I use them regularly to enable me to cycle through the city centre, thereby avoiding some rather busy roads. They have also protected us from the devastation that floods can cause.
The challenge we face, however, is that the independent Environment Agency says that the flood defences that have stood the test of time over those decades are now no longer sufficient to protect us from a major flood at the frequency with which the Environment Agency says we need that protection. Those flood defences need a significant upgrade or some alternative flood defence scheme will be required to provide Exeter households and businesses with the flood protection that they not only need but require if they are to qualify for flood insurance.
When the flood defences were built, they provided Exeter with protection from a major flood at a rate of around once in every 75 years. However, the current Environment Agency estimate is that, because of climate change, the rate of flooding has increased to around once in 40 years. It does not take a genius to work out that, given it is now 2012, we are already overdue a major flood in Exeter. Indeed, I have noticed a couple of occasions in recent years when the water has got very close to the top of our flood defences.
The Environment Agency tells me that upgrading Exeter’s flood defences is its major priority in Devon and Cornwall—it needs to happen, and it needs to happen very quickly. As we all know, the trauma of flooding can be very significant indeed. The excellent charity, the National Flood Forum, which I met yesterday to discuss the issue says:
“It can take up to two years for homes to dry out and be restored and during this time, many families live in temporary accommodation. The process is stressful, time consuming and simply beyond some people, particularly those who are elderly or vulnerable. The dread of flooding again can cause long term distress and mental health problems.”
The insurance industry says that its estimates of the latest cost of flooding to the average household are between £20,000 and £40,000.
As well as the challenge that we face locally in upgrading our flood defences, a second issue that is just as important relates to the statement of principles that the previous Labour Government signed with the insurance industry. Under the statement of principles, householders can still get flood insurance at reasonable rates if they are at risk or serious risk of flooding. The statement of principles runs out on 30 June next year, so we face a potential double whammy in Exeter. We will not have the flood defences that the Environment Agency says that we need to provide protection to our homes and businesses. Depending on whether the insurance industry’s estimate or the Environment Agency’s estimate is used, we are talking about between 2,500 and 3,500 homes of local people in well-known areas of the Exe floodplain: St Thomas, Alphington and low-lying parts of St Davids and St Leonards as well. I happen to live in one of those areas—admittedly, on the first floor, but I suspect I am still as at much risk as anyone.
We not only have the threat to those homes, but the very real possibility that, when the agreement with the insurance industry runs out, those homes and businesses will either not be able to get insurance against flooding or their insurance premiums will rise so fast that they become unpayable. The impact of that on thousands of homes in my constituency could be housing blight: people will not be able to move, sell their homes or get mortgages for them. Around 1,000 businesses that are affected—they are mainly on the major Marsh Barton industrial estate—will be unable to borrow or sell their businesses.
The recent study by the Department for Environment, Food and Rural Affairs on flood risk in the light of climate change predicted that damage from floods could rise tenfold to more than £10 billion in the coming decade. We have already seen the impact of the huge cuts—a 27% cut in their first year in office—that the Government have made to investment in flood defences. A number of schemes that back in 2010 had indicative funding for the next financial year, 2012-13, now do not have funding at all and will not go ahead.
In the past few weeks, a very damning report from the Public Accounts Committee said that the combination of Government cuts and the likelihood that hard-strapped local councils such as mine simply will not be able to fill the funding gap, as the Government are expecting them to do, has left a huge mismatch between the money available and the flood defences that we need.
As I have said, I have a number of questions for the Minister. First, does he accept the Environment Agency’s analysis that, for every £1 invested in flood defence, £8 is saved? If so, why are the Government cutting investment in flood defences so drastically? Given the calls—even from some Government Members—for more measures to kick start our economy, does he agree that reversing the cuts in flood defences, which is exactly the kind of investment in vital infrastructure that many economists are calling for, including the CBI today, would provide much-needed business for the building trade? If so, has he made such representations to the Chancellor in advance of the forthcoming Budget?
If the Minister cannot persuade the Chancellor to invest more in flood defences, will he review the new requirement for local communities to fund or part fund vital flood defences? If he will not review that requirement, how much or what proportion of the cost of the Exeter scheme does he expect will have to be shouldered by my local council tax payers? Given the big cuts in local government funding, where does he expect my local authorities to find that money?
If the local authorities are to be responsible for paying the bulk of the money the Minister expects to be raised locally, what in his view should the balance of responsibility be between the district authority and the county council? Exeter city council—the district council—prides itself on having the fifth lowest district council tax in the country, and the prospect of having to fund the whole cost of the scheme would be an unacceptable burden on my local council tax payers. What does he imagine to be a fair sharing of responsibility between the city council and the county council, which is the upper tier authority responsible for flood protection?
Would the Minister advise the local authorities concerned to borrow the funds needed? That might actually be sensible, given our record low long-term borrowing costs. Would they be allowed to do so? If they do, can he give an assurance that that will not fall foul of Treasury rules? Given all those challenges, I would be grateful to the Minister if he gave me some idea of when he thinks work on upgrading Exeter’s flood defences might start and be completed.
Given the potential gap between that work being done and the ending of the agreement with the insurance industry on cover, what progress is the Minister making in his discussions with the insurance industry about what will happen when the statement of principles runs out next year? Is he aware of the extreme urgency, given that insurers will be issuing new annual policies this summer that span the period after which the agreement ends? Is he also aware of reports that some insurance companies are already refusing to renew policies or are significantly increasing premiums because of the current uncertainty?
What estimate has the Minister made of the likely increase in insurance premiums if no alternative solution is in place in time? How many more property and business owners are likely to find they cannot get insurance at all if this happens? When does he expect to make an announcement about what the Government propose to put in place of the statement of principles? I am sure that he will be aware that the industry has a preferred model of a public subsidy, in effect to pay for the premiums for at-risk property owners over and above a threshold. Has he had discussions about that and other models with the Treasury?
Has the Minister pointed out to the Treasury that the cost to the Government of such a scheme would be a fraction of the cost to the Government if the floods take place and they have to pay the clean-up costs? What does he think about the insurance industry’s preferred model of pool reinsurance? Would he favour it being compulsory or an opt-in model, such as the scheme already available to businesses to insure against terrorist attack?
Do the Government intend to consult on their proposals when they are published? Is it likely that whatever solution the Government come up with will require legislation? If so, we are looking at a very tight timetable indeed. The indications that I have been given from the insurance industry—in fact, it has stated them publicly—is that it feels frustrated at the lack of progress and does not feel that the Government are taking the issue seriously enough. Will the Minister give my constituents a categorical assurance that they will not be left in a position next year where they do not have the necessary upgrade of Exeter’s flood defences and they do not have a replacement for the agreement with the insurance industry that currently ensures cover at reasonably affordable prices?
I am grateful for the opportunity to raise an issue that is of great concern to thousands of householders and businesses in my constituency. They face a potential double whammy in a very short space of time next year: not having the upgrade to our flood defences that the Environment Agency says that Exeter requires and the uncertainty that hangs over them about the future of their insurance cover. I would be grateful to the Minister if he reassured them on those points.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon)
I congratulate the right hon. Member for Exeter (Mr Bradshaw) on securing the debate on a matter that is of great concern to his constituents. Nothing would please me more than to be able to protect the nearly 4,000 properties that are currently at risk in Exeter. I hope that we can make progress in the coming months and have a scheme in place as quickly as possible.
I am sympathetic to the need to improve the existing flood defences in Exeter. First, let me be clear on the record that flood and coastal erosion risk management is an absolute priority for the Department for Environment, Food and Rural Affairs. The Government are committed to protecting people and property from flooding and coastal erosion where it is sustainable and affordable to do so. The right hon. Gentleman raised the issue of spending. I want this to be a constructive debate that focuses on the needs of his constituents, but we are talking about a 6% difference in this spending round compared with the previous spending round. In the context of cuts to Departments such as DEFRA of approximately 30%, that shows the absolute priority that we are giving flood and coastal erosion risk management, coupled with the efficiencies being found in the Environment Agency budget to spend more on the front line and on the partnership funding, which I will come on to talk about and which will be important for the aspirations of his constituents.
Mr Bradshaw
I have no desire to turn the debate into political ping-pong, but Lord Smith, the chairman of the Environment Agency, talked about a cut in cash terms of approximately 27%. The figures for capital investment by DEFRA for flooding work between 2010-11, the last figure of Labour spend, and 2011-12, are £354 million down to £259 million—a 27% cut in anyone’s terms.
Richard Benyon
The right hon. Gentleman, who was a Minister in DEFRA, will understand that these things are done in spending rounds. Very few flood schemes go from conception to commissioning in one year, which is why we base it over a spending review period. The excellent chairman of the Environment Agency will confirm—our figures have been sent to the Public Accounts Committee—that there is a 6% difference. The last Chancellor in the previous Labour Government, of which the right hon. Gentleman was a member, announced shortly before the general election that there would be 50% capital cuts in budgets. I will be generous to the right hon. Gentleman and say that if his party had won the general election it would not have cut the capital budget by 50%, but it would certainly have cut it. I think that he would have also implemented all the recommendations of the Pitt review into those very damaging floods in 2007, part of which form the basis of the partnership funding system that we have introduced, and part of which resulted in the implementation of local flood risk management through lead local flood authorities. That is very important for communities such as his, and I hope that we can work together constructively in the coming months to achieve a result for those people.
It is the nature of flood and coastal defence investment that there are always more projects than national budgets can afford at any one time—there always have been and, sadly, always will be. Some 5.2 million homes are at risk from flooding and we want to protect as many of them as possible. Funding has always needed to be prioritised, and that would be the case even if capital budgets had not been reduced in the spending review.
As we have heard today, the Environment Agency is developing an option for Exeter that is expected to cost £25 million over its lifetime. Under the new partnership funding system, that might attract approximately £13 million funded by the general taxpayer. That leaves a shortfall of £12 million. Many schemes are funded totally by the taxpayer. What we have now in our partnership funding scheme is a totally transparent system. For years, communities such as the right hon. Gentleman’s wanted schemes like this to go ahead, always believing that total funding by the taxpayer would be available, but always just missing out and never knowing why—now they can see a transparent funding system.
The right hon. Gentleman talked about the “independent” Environment Agency. It is part of DEFRA; it is the Government in terms of spending flood money. The people in the Environment Agency are the experts. They have developed that transparent funding system on the lines of the recommendations of the Pitt review and have come up with the scoring for what can be achieved for his community.
Exeter is an excellent example of why we have had to change the funding approach and introduce the partnership funding scheme. The new approach follows recommendations made by Sir Michael Pitt’s review of the 2007 flooding, in which he said that local communities should be allowed and encouraged to invest in flood risk management measures so that more can be done and more schemes can be introduced. He also said that future investment plans should not simply assume that the cost of flood alleviation is met centrally. Those recommendations were accepted fully by the Government. If we had carried on with the old system, we would be placing an ever-increasing burden on the general taxpayer to meet the long-term costs of flood defence alone. Those costs are expected to rise considerably with our changing climate, as the right hon. Gentleman predicted in his speech.
The old system artificially constrained how much could be done in each town and city because Government funding has always been, and always will be, limited. The old system meant that schemes were either funded in full, or not at all, based on top-down decisions. Many worthwhile schemes, such as in Exeter, were knocked back for funding, in many cases without a realistic prospect of ever going forward. At a cost of £25 million, the Exeter scheme would have been in that category, doomed never to have had a high enough priority for full funding. Transparency and greater local involvement is at the heart of the new partnership funding system. Instead of meeting the full costs of a limited number of schemes, national funds are spread further in order to achieve more overall. Many schemes will continue to be fully funded, where value for taxpayers’ money is sufficiently strong.
In other cases, such as Exeter, national funding is available to part-fund the project. This approach creates space within the system for local and private contributions to help pay for the significant benefits to land, property, infrastructure and other assets realised when defences are built. There are potentially many sources of funding to tap in to, both public and private.
Last year, the community of Morpeth found itself in a similar position to Exeter. The proposed scheme in that area did not meet the old criteria for full funding, so it was deferred, potentially indefinitely. Under the new approach, the Government were able to meet around half of the costs of the scheme. Leadership was shown by Northumberland county council, meaning that the scheme is now fully funded and will proceed in the coming months, with half the money—coincidentally, up to £12 million—met from local sources. This example shows the power of the new system, and there are many others that I would like to point to; this is important in addressing one of the right hon. Gentleman’s points.
In south Derbyshire, Nestlé contributed £1.7 million to a £7 million scheme to protect 1,600 homes and further financial contributions have been made from industry and other means. In other areas, the planning system has been used to unlock schemes, whether through section 106 money or some other form of funding, rather like exception site housing schemes in rural communities. The income from those schemes goes to deal with flood and coastal erosion risk management. In respect of another scheme in York, York city council is finding the money to bring it above the line.
The new system has already helped secure £72 million of external funding for schemes in the next three years—more than 500% higher than during the previous spending period.
Richard Benyon
If the hon. Gentleman will let me finish this point.
Early indications suggest up to a third more schemes are likely to proceed than if we had kept up the old all-or-nothing system.
Mr Joe Benton (in the Chair)
Order. I am sorry, but under the rules for half-hour debates, an Opposition spokesperson cannot intervene.
Mr Bradshaw
I am interested in the scheme in Northumberland that the Minister mentioned. Will he outline—if he does not know, perhaps he will write to me—whether the county council or district council was involved and what the balance of funding was?
Richard Benyon
The county council provided funding from its capital budget. I am not going to sit at my desk—once the right hon. Gentleman’s—and try to dictate the balance of contributions from district or county councils, businesses or whatever. That is the purpose of implementing the Pitt recommendations. These should be local decisions.
There is at least clarity. If I made an exception and broke away from the clear rules that guide the scoring of schemes, I am sure that, given his previous position in DEFRA, the right hon. Gentleman would be the first to recognise that I would be called back to this Chamber, rightly, by hon. Members from all parties, asking, “Why have you made an exception? Why have you broken the clear guidelines that you have set to favour one scheme?”
I have huge sympathy for the right hon. Gentleman’s constituents. I want this scheme to go ahead.
Despite the economic situation, DEFRA plans to spend more than £2.17 billion on flood and coastal erosion risk management. The latest projections suggest that we are on course to exceed our target to protect 145,000 households by March 2015.
Ian Paisley (North Antrim) (DUP)
Will the Minister share those examples, principles and policies with the Northern Ireland Executive, because we obviously have coastal erosion and areas of flooding in Northern Ireland, which, frankly, the authorities have been dilatory in managing and dealing with? It would be worth while sharing with our own Government in Northern Ireland the examples that the Minister has shared with hon. Members, so that we can learn from them.
Richard Benyon
I am happy to share everything. There are no state secrets in what we are doing here. We just want more schemes to go ahead. I am happy to share examples with ministerial colleagues, the Northern Ireland Executive and anyone else who is interested.
We are learning and our learning curve is steep. I am impressed with how the Environment Agency has implemented this new scheme over this year. The fact that we are able to take on more than 60 new schemes in the indicative list for the coming year shows that it is working.
Let me answer some other points made by the right hon. Gentleman. He defined the statement of principles as ensuring that insurance was available to every household and used the words, “at reasonable rates”. Actually, that is inaccurate. The statement of principles does not influence pricing. It never did; that is part of the problem. Some 2,500 homes in my constituency were flooded in 2007, many of which can get insurance because of the statement of principles, but the high premiums and high excess charges are really testing some people.
Is there urgency about how we progress in our dealings with the insurance industry? Absolutely. Do we want an arrangement moving forward from 20 June 2013 that still ensures that insurance is widely available? Absolutely. We will make an announcement in the spring that will give a full year for new systems to be in place, providing clarity and ensuring that insurance is freely available. We hope that we will also be able to announce that there will continue to be some sort of pool arrangement for those in flood-risk areas who are on low incomes. That is important.
It is also important to note that partnership funding has weighting for communities where there are high levels of deprivation, because we recognise that there is a lack of capacity in many such areas to take forward schemes under partnership funding and there is a desperate need to resolve these issues so that some vulnerable people can be protected. Therefore there is a weighting in favour of such systems.
In the past, insurers have charged everyone in a pool system, so that constituents of the right hon. Gentleman, and mine, who do not live in areas of high flood risk are subsidising those who do. The statement of principles always was going to end in 2013, whoever was in Government. We are desperately keen to find a solution that takes things forward.
The Association of British Insurers, which is, rightly, a lobbying organisation on behalf of large financial institutions, says that it needs a Government subsidy—a taxpayer subsidy—for the insurance industry. That is not realistic, but we think that there is a way forward and that we can work with the industry and find a solution. I assure the right hon. Gentleman and all hon. Members that we are working to achieve that.
The right hon. Gentleman mentioned the Public Accounts Committee’s criticisms of the partnership funding scheme. I will make the same point that I made when those were published: we are implementing the recommendations of the Pitt inquiry, rightly instigated by the previous Government. Pitt made 92 recommendations, in a good report. We are implementing its recommendations on partnership funding and the local aspect—the creation of lead local flood authorities—giving local authorities the capacity to take forward flood and coastal erosion risk management. That is working well.
Will we review partnership funding? We are constantly reviewing it; we want to streamline this new concept and get it right, but as I said earlier, it is not for me to dictate whether a local council, a district council or any others provide that added element of the funding. It is wrong to say that we want hard-pressed council tax payers to dig deeper into their pockets. There are various ways in which this funding is found. Yes, sometimes local authorities step up to the mark, but that is by no means always so.
Under the latest capital programme, 22 schemes are going ahead in Devon and Cornwall this coming year, with a total of £5 million grant-in-aid funding during 2012-13, including the construction of improved flood defences in Braunton, Ottery St Mary, St Ives, Stoke Canon, Teignmouth and Truro, and a further 49 projects in Devon and Cornwall have indicative funding for 2013-14 or later, subject to confirmation of the outcomes, cost and partnership funding arrangements.
I recognise that this matter is important to the right hon. Gentleman and his constituents. I have had constructive conversations with colleagues from all parties, many of which have resulted in successful commencement or announcement of schemes, and I assure the right hon. Gentleman that I will continue to work with him to try to achieve a good result for the people of Exeter.