draft Merchant Shipping (Alcohol) (prescribed limits amendment) Regulations 2015
(9 years, 3 months ago)
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The Parliamentary Under-Secretary of State for Transport (Mr Robert Goodwill)
Good morning, Ms Dorries. It is a great pleasure to serve under your chairmanship this morning.
As we celebrated so successfully during London international shipping week last week, each year some 500 million tonnes of freight are handled by ports across the United Kingdom. This includes 40% of our food and a quarter of our energy supplies. On top of that valuable cargo, there are 28 million passengers using our ports annually. We entrust the safety of these people and goods to the professional mariners who navigate through our waters, some of which are the busiest in the world. It is vital that all members of crew, whatever their function, are capable of undertaking their duties effectively, and, in particular, that they are not incapacitated through the consumption of alcohol.
To address the risks posed by excess alcohol consumption, the Railways and Transport Safety Act 2003 made it a criminal offence for professional mariners sailing in UK waters or on board a UK-flagged vessel anywhere in the world to exceed specified limits. These were set at the same level as for motorists in England and Wales: in the case of breath, 35 micrograms of alcohol in 100 ml; in the case of blood, 80 mg of alcohol in 100 ml; and, in the case of urine, 107 mg of alcohol in 100 ml. When mariners are found to have exceeded these limits, they face prosecution. For example, in 2012, a cargo vessel collided with a ferry approaching Belfast harbour. Both ships were badly damaged, although, fortunately, there were no injuries or pollution, and both were able to proceed into port under their own power.
When the police breathalysed the master of the cargo vessel some hours after the accident, he was found to be still three and a half times over the alcohol limit. He was arrested, prosecuted and ultimately sentenced to a year’s imprisonment. That is just one example of how alcohol consumption can severely impair a seafarer’s ability to safely navigate a ship.
Michael Fabricant (Lichfield) (Con)
Next month, I shall be navigating the Oxford canal on a narrow boat. My hon. Friend will know, because we have discussed it in the past, that much money is made from tourists and people coming to this country and hiring narrow boats. Will this legislation affect people hiring narrow boats who perhaps enjoy a tiny tincture as they travel at four knots down one of our beautiful canals?
Mr Goodwill
I thank my hon. Friend for his question. The legislation will apply to professional mariners. If one were to charter a vessel with a crew so that one could enjoy a party on board, the crew would be expected to maintain their sobriety under the terms of the legislation. However, the regulations would not apply to recreational seafarers. Of course, we have laws in this country for people behaving irresponsibly. If I were up a ladder painting my house and I was drunk and dropped something on someone’s head and killed them, I would be held responsible. Previous Governments have looked at how the regulations may apply to recreational mariners, and this measure does not apply to them.
I mentioned one example of how alcohol consumption can severely impair a seafarer’s ability to safely navigate a ship.
Robert Flello (Stoke-on-Trent South) (Lab)
Given that the regulations deal with lowering the limit—the example that the Minister has just cited was of somebody three and a half times over the existing limit—how does he see the lowering of the limit affecting such cases where the seafarer clearly did not have any regard at all for the existing limits?
Mr Goodwill
Obviously, as all Members will know, when one sets a limit for alcohol in this country, whether it is for an airline pilot, a mariner or the driver of a car, truck or bus, there are those who will disregard the law and break the limits. Indeed, one of the worst cases of drink-driving that we have seen, as in the port of Belfast, was the master of a vessel who was three and a half times over the existing limit, which would probably be five times over the new limit. Of course, such irresponsible behaviour cannot be tolerated. In the case that I mentioned, the man, who was not a UK national—and neither was the ship on the UK shipping register—was imprisoned and felt the full force of the law. Indeed, it was very fortunate that people were not killed and that a major pollution incident did not ensue from that particular incident.
Robert Flello
I am grateful to the Minister for being generous with his time. Are there facts, figures, data on mariners who have been over the new limit but below the existing limit having accidents or causing problems? Is that the reason behind the introduction of a lower limit?
Mr Goodwill
As I will explain, we have a new international agreement over global limits; as I develop my points, that will become apparent. This is about having the same limit all over the world so that mariners can be in no doubt about what the limit is. Indeed, I will not go too much into drink-driving, but there were a lot of arguments about driving between Scotland and England when the Scots changed their regulations. Therefore, no one can be in any doubt if they are on board a vessel about what the limit is. Many shipping companies will go over and above this and impose zero tolerance on their crew members, particularly on short sea crossings, where people can have a normal social life on land and engage in their work on the vessel.
In the example that I gave, that captain endangered not only himself and his own vessel but other ships in the vicinity and the people on board them, not to mention the local marine environment. That is why we take the matter of breaches of our alcohol limits so seriously. While there is much that we can do as a nation to ensure the safety of shipping, there is no doubt that even more can be achieved by agreeing improved standards to be applied globally—going on to the point that I was making—through the International Maritime Organisation. Particularly important is the IMO’s convention on standards of training, certification and watchkeeping. The purpose of this convention is to establish internationally the basic standards of competence and behaviour to which seafarers must adhere. At the Manila conference in 2010, a number of changes to the convention were agreed to address risks to safety that had been identified. This included, for the first time, an internationally agreed alcohol limit for professional mariners. In the case of breath, 25 micrograms of alcohol in 100 millilitres and, in the case of blood, 50 milligrams of alcohol in 100 millilitres. I cast my mind back to the existing regulation, which was 35 and 80; that reduces to 25 and 50.
These tough new limits on alcohol consumption reflect a global commitment to tackling the problem of seafarers who cannot fulfil their duties through drink and the threat that that poses to safe navigation. It is envisaged that they will send a strong message to ship operators and seafarers worldwide that excessive consumption of alcohol at sea will not be tolerated. It is right that, as a leading maritime nation, we put our weight behind that effort. The regulations that we are considering today would bring existing UK legislation into line with the limits agreed at the IMO, with the addition of a limit in the case of urine of 67 milligrams of alcohol in 100 millilitres, which is the comparable level.
In addition, having international common alcohol limits helps mariners to understand the standard of behaviour expected of them no matter where they are in the world. Given that national borders are not visible at sea, enforcement of those limits is simplified when seafarers are found to have exceeded them. The effectiveness of these regulations will be kept under review. The Secretary of State will be required to report on the findings of periodic reviews of the effect of the new alcohol limits. This will ensure that we continue to focus on the overriding objective of maintaining safe navigation.
The maritime industry is vital to the UK’s prosperity and many human lives depend on its safe and efficient operation. By tightening the alcohol limits that we apply to our professional mariners, we both reduce the risk of accidents in our waters and stand shoulder to shoulder with other maritime nations seeking to do the same. I commend the order to the Committee.
Christian Matheson (City of Chester) (Lab)
When my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) texted me to let me know that he and I had been selected to serve on this Committee and I replied with enthusiasm, I suspect that he thought either that I was being facetious or that I had seen an opportunity for cavilling with hon. Members on the Government Benches. I have to say, this is a matter of grave concern to me for reasons that I will explain.
I have no problems with lowering the limits, which seem entirely sensible. However, the regulations are predicated on the authority of the International Maritime Organisation and my recent experience is that it is not fit for purpose. Therefore, any regulations based on the IMO’s management need to be looked at carefully.
I am concerned about the inability of other countries to enforce the regulations and I am not quite clear about the testing regime at sea. My experience of this matter, limited as it is, comes from a tragic but continuing constituency case started by my predecessor as MP for Chester, the Conservative, Stephen Mosley, to whom I pay tribute for his work. The case continues, causing anguish for parents of one of my constituents who has been missing at sea since March 2011.
Rebecca Coriam was working on a Disney cruise liner, which was sailing out of Los Angeles to Mexico. It was registered in the Bahamas, but it was managed by a British-owned company. I would like to think that the International Maritime Organisation had a role to play in co-ordinating the various different authorities, including those in the UK, to protect seafarers and their passengers. Rebecca was working as a nursery assistant on a Disney cruise liner. She had worked on a couple of tours previously for Disney, so she was well suited to and versed in her duties.
The Chair
Order. Mr Matheson, the regulations are about reducing alcohol limits. Therefore, that is the scope of what we are discussing this morning. Do you intend to move on specifically to the reduction of alcohol limits?
Christian Matheson
Indeed, Ms Dorries, I will do that. If I may, I will also express my concern about the inability to monitor those limits at sea under the auspices of the International Maritime Organisation.
When Rebecca went missing, there was video footage of the last moments that she was seen. In the investigation undertaken briefly by the Bahamas police—because it was a Bahamas-registered ship—the authorities suggested that Rebecca had been drinking. I have to say that there was no evidence that that was the case and I am not clear how the regulations will protect any British citizens from being accused of drinking as opposed to actually drinking. The allegation of being drunk at sea, which was used to obfuscate the case that Rebecca’s family faces—[Interruption.]
The Chair
Order. I have total sympathy with your constituent and the case you are trying to highlight, Mr Matheson, but the regulations are about the alcohol limits related to mariners responsible for ships, not passengers or people who are enjoying cruising or whatever you are trying to highlight. Are your comments going to be specific to this piece of legislation?
Christian Matheson
They are, Ms Dorries, because Rebecca was an employee on the ship and the statutory instrument makes it clear that anyone who is an employee serving on the ship with responsibility for the safety of passengers—Rebecca had particular responsibility for the safety of children—must be tested under the regulations. From my experience of the International Maritime Organisation and indeed the Bahamas Government, which was responsible for undertaking the testing, I do not believe that the testing regime in the regulations is fit for purpose. Under the terms of the regulations, Rebecca was absolutely responsible for the safety of passengers.
The current testing regime, managed by the Bahamas authorities in that case, but under the auspices of the International Maritime Organisation, is unfit for purpose. I cannot see how testing will take place on the high seas and in cases such as Rebecca’s in which someone goes missing overboard and a multiplicity of different authorities are involved—a British-owned company and a Bahamas-owned ship sailing out of the United States—it is not clear how British citizens’ or seafarers’ wellbeing, or that of the passengers who are the responsibility of the seafarers, will be looked after.
The Minister might wish to know that the Coriams and I have now hit a brick wall. No one seems to want or to be able to take this case forward, and there does not seem to be any suggestion of how the International Maritime Organisation may wish to take responsibility for this cross-country problem. The authorities in the Bahamas have refused to correspond with me. When I have been to the International Maritime Organisation, it has backed the Bahamas. Ms Dorries, I wonder whether I might take this opportunity to seek a meeting with the Minister to discuss this case, particularly in relation to the allegation that my late constituent had been drinking, when there is no evidence of that. Of course, if the regulations had been in force, there might have been more possibility of that testing happening. If I may take this opportunity, Ms Dorries, I am very keen to seek such a meeting. I am grateful to you for giving me the opportunity to raise my concerns about the operation of this statutory instrument.
Mr Gordon Marsden (Blackpool South) (Lab)
May I say that it is a great pleasure to serve under your chairmanship, Ms Dorries? May I also, without straying beyond the terms of the motion, commend my hon. Friend the Member for City of Chester for his concern about the tragic case of his constituent? What he has said raises larger issues about not just the relationship of the IMO to the UK but ensign registering. I am sure that he will wish to pursue that angle with the Minister and using the other parliamentary mechanisms available to him.
However, we are concerned today, as you have highlighted, Ms Dorries, with the specifics of these regulations. We welcome measures that are derived internationally—although they need to have the fullest input from the UK—and that may help to improve safety at sea, and therefore the decision today to implement them through this statutory instrument.
The Minister talked at the beginning about British shipping week. I join him in commending the great tribute that the week was, in particular, to all those who bring freight and passengers to this country and take them all round the world. It was a week that my late father, who served in the merchant navy during world war two, would have been proud of. But that makes it all the more important that people who serve on merchant ships observe the proper codes that have been implemented.
We have seen in a range of incidents—some particularly tragic—the damaging role that alcohol can play in maritime accidents. Collisions in Belfast, already alluded to, and in Cornwall have sharpened the need to focus attention on alcohol and ensure that we uphold the strongest standards possible when it comes to safety at sea. Again, referring to what my hon. Friend the Member for City of Chester said, we need to ensure that the mechanisms for monitoring that are as strong as possible.
Research by the US Coast Guard has found that a blood alcohol concentration of 0.1 or higher increases the odds of being involved in a fatal accident at sea by 10 times. Clearly, therefore, it makes sense, in maritime matters, that the standards should be applicable as commonly as possible worldwide on the open seas. A drunken navigator can be as lethal as a drunken driver.
The measures in themselves seem sensible and proportionate, but I would appreciate the Minister’s response on just a few points about how the appropriate regulations were arrived at by due process and how Ministers intend to ensure that they are implemented effectively in the future. In that respect, I was pleased to see in the explanatory memorandum that there was strong consultation with both shipping companies and trade unions via the Merchant Navy Training Board, and that they were asked for their views on the appropriateness of the regulations. However, can the Minister give us an assurance that as the regulations bed down, that close monitoring and close consultation will continue? How will information about the new regulations be distributed to seafarers to ensure that no one is found in contravention of the rules without being made aware of the new limits?
I have sat on many of these Committees—I am sure you have sat on many of them too, Mrs Dorries, and indeed chaired some of them—and Francis Drake’s famous phrase has often come to mind: that
“it is not the beginning, but the continuing of the same unto the end, until it be thoroughly finished”—
this is a naval reference, but I hope it is appropriate—
“which yieldeth the true glory”.
The important issue is not simply passing the regulations, but implementing and monitoring them.
The Government’s draft regulations say the policy will be reviewed after five years at the latest. Does the Minister think that is sufficient? If events require the policy to be revisited more frequently, will he consider that? What metrics will the Government use to assess how well the regulations have been adopted and the effect they have had on safety levels?
The regulations state that the review will consider whether the objectives
“could be achieved with a system which imposes less regulation.”
I assume that is standard language for a Government instrument—I hesitate to use the word “boilerplate”—but will the Minister assure me that the regulation of alcohol levels in a seafarer’s blood will not, under any circumstances, be seen as a case of burdensome red tape and will always be treated as the sensible and necessary oversight it is?
The hon. Member for Lichfield alluded to the situation on inland waters. I noted with interest the terminology in the explanatory memorandum, which states that the limits, as the Minister said,
“apply to professional mariners only, as the provisions relating to non-professional mariners in section 80 have not been commenced.”
For my enlightenment, and perhaps for that of other members of the Committee, will the Minister enlarge on that reference to section 80 not having been commenced?
I think we all accept the need to have the strictest possible regulation of people who are in charge of any aspect of a ship. The points I have raised are ones on which I genuinely seek reassurance, as I am sure my hon. Friends do. Otherwise, however, we are happy to support these sensible and safety-conscious proposals, with the proviso that Ministers keep a strong focus on their comprehensive implementation in the coming years.
Mr Goodwill
I will first make a few comments regarding the issue raised by the hon. Member for City of Chester. I extend my condolences to his constituent’s family; the situation must have been very traumatic and upsetting. I can tell him that work is being undertaken at the IMO to develop guidelines on dealing with crimes and disappearances at sea. I can certainly write to him about that in a little more detail. Of course, the ship in question would not be subject to these regulations, as it is not a UK ship and was not in UK waters. Indeed, enforcing and testing are the responsibility of the flag state—in this case, the Bahamas. If these things had happened on, for example, the new Britannia cruise liner, which is a UK-flagged vessel, the regulations would have applied.
As with the current limits, those before us will apply to professional mariners on duty—and to those off duty, if their duties would require them to take action to protect the safety of passengers in an emergency—on all ships in UK waters and on all UK-flagged ships anywhere in the world. Obviously, that would include the master of the ship and watchkeepers, but it might also include crew members on UK-flagged ships who have responsibility, for example, at lifeboat muster stations or for looking after children in an emergency.
Michael Fabricant
My hon. Friend said that the regulations would apply only to UK ships in UK waters. Does that mean, therefore, that if they are on the high seas, in international waters, the regulations will not apply?
Mr Goodwill
It is up to other nations around the world to do what we are doing and implement such measures in their national regulations, so that those measures would then apply to vessels flagged with that nation. That is why we are encouraging every member of the IMO do that.
Michael Fabricant
But is my hon. Friend saying that the regulations would not apply to a UK-registered ship that was not in UK waters?
Mr Goodwill
For the avoidance of doubt, the regulations will apply to UK ships anywhere in the world.
We are keen, as the hon. Member for Blackpool South said, to ensure that knowledge of these regulations is spread widely. Indeed, the Maritime and Coastguard Agency has issued notice to mariners about all the amendments made at the Manila conference, not just the one before the Committee today.
It is right that we should monitor compliance with the changes to the regulations. In the event of an incident, one of the first courses of action would be to breathalyse the crew and the master of the ship if there is any suggestion that alcohol may have been involved. Companies themselves will of course notify their staff of the changes. Indeed, many companies already have an alcohol and drug monitoring policy, and in many cases have zero tolerance to alcohol.
Rachael Maskell (York Central) (Lab/Co-op)
Does the master of a ship have any additional responsibilities for ensuring that crew comply with these regulations?
Mr Goodwill
Obviously, the master of a ship is the primary person on board a vessel who will be able to pick up whether members of the crew have an alcohol problem. If it is company policy not to have alcohol on the ship, disciplinary action can be taken through a crew member’s terms of employment if alcohol is discovered.
Rachael Maskell
How will the master of a ship be able to fulfil those responsibilities?
Mr Goodwill
The master of a ship is charged with complying with all regulations that apply to vessels at sea. If it is a UK-flagged ship, he will be responsible for ensuring compliance with the regulations. If other members of the crew are concerned about the captain, they also have a responsibility to draw that to the attention of the ship’s owners or, possibly, the first mate or chief engineer.
The hon. Member for Blackpool South talked about the review period and asked whether we will consider taking unilateral action earlier should it be necessary. Of course, all matters are kept under review, but I consider it important that we act internationally wherever possible, to avoid confusion. The measure under consideration is about setting an international level.
I recently visited the marine accident investigation branch, which provides comprehensive reports. I read a number of those reports in preparation for this Committee, including on the incident in Belfast that I described. The marine accident investigation branch is keen to ensure that, if alcohol is involved in an accident, it will be in the report and lessons will be learned. I do not consider the amendment to be in the category of burdensome red tape. Indeed, we are merely changing the levels that already apply.
The hon. Member for Blackpool South talked about commencement. The section of the Railways and Transport Safety Act 2003 that applies to limits for non-professional mariners has never been commenced. Public consultation on the matter in the 2000s highlighted specific problems with applying the section to leisure crafts where the duties of those on board are ill-defined. Much can be done by means other than national legislation. For example, the Royal Yachting Association, supported by my Department, has promoted among pleasure boaters the message that alcohol and water do not mix. At local level, harbour authorities can manage any problems identified by working with user groups and hire companies, for example to agree codes of conduct. If necessary, they may utilise any powers they have to make byelaws or general directions.
Mr Marsden
I seek a little more clarification on that point. I absolutely accept the Minister’s points. I do not want to stray beyond the narrow interpretation of the regulations into uncharted waters, but he will be aware that sensitivities in relation to such issues, including among Members, are inevitably highlighted by individual incidents and accidents, a couple of which have been mentioned in this debate. We can see the river outside, and we know that tragic incidents occur on inland waters, too. Perhaps the Government will think about how they might be even more proactive in that process without necessarily resorting to major new secondary or primary legislation.
Mr Goodwill
I sympathise with the hon. Gentleman’s intention to ensure that we do everything we can to protect life. One problem we face is in connection with the recent Court of Appeal ruling on what constitutes a vessel in the case of an accident involving a jet ski. The Railways and Transport Safety Act defines a ship as a “vessel used in navigation”. The Court of Appeal held that that means that, to be a ship, a vessel must be used to make ordered progression from one place to another. A vessel or buoyant craft simply used for having fun without the object of going anywhere does not fall within the meaning of “ship” in the Act. The Court of Appeal has therefore decided that a jet ski is not a ship within the legislation. We could be getting into difficult territory, because making that change would not simply be about amending legislation. If we needed to take action, we would need legislation that addressed some of the issues raised by the Court of Appeal.
We have had a useful discussion today that demonstrates the high regard that hon. Members have for the maritime industry and the vital part it plays in sustaining our nation’s wellbeing. In particular, it is evident that we share a strong commitment to upholding safety at sea. I welcome the support shown today for the regulations as part of the continuing effort to address the risk posed by excessive alcohol consumption by seafarers.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Merchant Shipping (Alcohol) (Prescribed Limits Amendment) Regulations 2015.
draft Flood Reinsurance (Scheme and Scheme Administrator designation) regulations 2015
DRAFT FLOOD REINSURANCE (SCHEME funding and administration) REGULATIONS 2015
(9 years, 3 months ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Rory Stewart)
I beg to move,
That the Committee has considered the draft Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015.
The Chair
With this it will be convenient to consider the draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015.
Rory Stewart
It is a great honour to serve under your chairmanship, Mr Nuttall. This is my very first time dealing with a statutory instrument, and I feel privileged to deal with this issue. As a Member of Parliament for a Cumbrian constituency, I, like many Members on both sides of the Committee, saw directly the devastation of flooding and felt directly the need to address the issue of flood insurance. In Eamont Bridge, for example, people are living in houses that were built in 1650—they have not been built recently on floodplains. I saw the total wrecking of people’s lives there. They felt they would never be able to get insurance again and were deeply anxious about what the floods would mean for their house prices, their families and their possessions. I would also like to pay tribute to my hon. Friend the Member for Newbury, who put an immense amount of energy into very complex negotiations with the insurance industry, going from the statement of principles to the regulations that we are now in a position to debate.
As Members will be aware, the regulations ensure that under Flood Re, the flood insurance component of a buildings and contents policy for a band C home is anticipated to be £246 a year. Without Flood Re, and without the negotiation that my hon. Friend was so closely involved in, the price could be double that. Excesses, which can be in the thousands of pounds, will be limited to £250.
There are two sets of regulations to be debated today. The draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015 set out the framework within which Flood Re will operate, how the levy will be calculated and the technical aspects of the scheme. The draft Flood Reinsurance (Scheme and Scheme Administrator) Regulations 2015 designate the scheme administrator and enable Flood Re to begin operating. I pay tribute to the public, who worked closely with us in the consultation, and to specialists from the Association of British Insurers, to individual insurers, to the Lloyd’s market and to the financial regulators. I also pay tribute to the hon. Member for Brent North, who has been very involved—he has discussed it with me personally on a number of occasions—to the Committee on Climate Change and to Lord Krebs, whom I saw this morning.
It is important that the regulations are debated now because Flood Re will be signing multimillion-pound contracts for their reinsurance before Christmas and because financial regulators are currently considering Flood Re’s application for authorisation as a reinsurer, which is a highly rigorous and scrupulous process. Financial regulators and the insurance industry need certainty, and that is what the regulations are about. They provide for the legislative framework within which Flood Re will operate and for Flood Re to capitalise in order to meet its solvency requirements.
The making of the regulations, subject to parliamentary approval, needs to be carefully sequenced with the financial regulator’s approval and authorisation process. At the point at which we intend to make the regulations, we will check with the Prudential Regulation Authority that Flood Re’s application is still in the authorisation process. While the financial regulators cannot provide a definitive statement on the likelihood of an authorisation before the review is completed, that will provide an indication that the application is progressing and that financial regulators are in the process of formulating their view.
I shall now provide an overview of the major aspects of the regulations and deal briefly with individual issues including funding for Flood Re, public money, accountability and controls, premium thresholds, the review scheme every five years, the transition to the free market, and incentivising management of flood risk.
Flood Re will be funded by a levy raised from the relevant insurers. The amount of levy paid by each insurer will be based on the insurer’s share in the UK home insurance market. A small number of companies currently control about 70% of the market, and they will contribute about 70% of the levy. The total amount of the primary levy to be raised from insurers will be £180 million. However, given the unpredictable nature of flooding and Flood Re’s solvency requirements, an additional levy may be raised from insurers if needed.
The regulations set out the constraints that Flood Re needs to operate within, as the levy is likely to be classed as public money by the Office for National Statistics. This affects all the accountability mechanisms relating to Flood Re. Flood Re will operate independently as a normal reinsurance company regulated by the financial regulators, but, because of its unique position as a reinsurance company within the public sector, Flood Re is being set up as a bespoke arm’s length body of the Department for Environment, Food and Rural Affairs. This means Flood Re will be directly accountable to Parliament—this is a key point—rather than to Government. There will be very limited Government oversight.
DEFRA Ministers—my colleagues and I—will remain accountable to Parliament for general policy matters relating to flood risk management, including flood insurance and the regulations implementing Flood Re. There will, however, be no role for Ministers in the day to day management of Flood Re. As with all public sector bodies, Flood Re will be required to manage itself within the normal requirements for regularity, propriety and value for money, and full parliamentary accountability. It will be audited externally, but the National Audit Office will be able to conduct value-for-money reviews of any of its activities and report on those activities to Parliament.
The regulations and the scheme document set out the price that insurers will pay to cede policies to Flood Re. We call these, as Members will see in the documents, the premium thresholds, and they are payable by insurers according to council tax bands. The point is that we wish to target the benefits at the lower council tax bands. In other words, it is intended to be a progressive policy, and the intention is that those benefits will be passed on to the policyholders by the insurance industry.
The regulations require that Flood Re will review the level of the levy and the premium threshold at least every five years: in other words, it will try to calculate whether we have set the levy at the correct amount. Any changes to the scheme or levy would require amendments to regulations, which would have to be approved via an affirmative resolution process, and Ministers may also call a review of Flood Re at any point.
Members have shown considerable interest in how Flood Re will manage the transition to risk-reflective prices over the medium to long term. Flood Re will therefore publish a transition plan three months after the regulations come into force. That will be the first statement of how the transition will operate. It may then give indications of how prices will evolve during the life of Flood Re in order to encourage people to move towards risk-reflective pricing. But the financial regulators are clear that Flood Re cannot be bound to the indications because Flood Re’s solvency has to be assured. Flood Re will also provide information about flood risk and the scheme for the insurers to pass directly on to their customers. In other words, insurers and customers will be kept fully informed about the flood risk.
Members may wish to push Flood Re further on what it can do to incentivise people to manage their own flood risk and to take resilience measures. Flood Re will consider the role of incentives for policyholders to manage their flood risk in its transition plan, and it has been agreed with Flood Re that it will do this within two years of becoming fully operational, but the focus now has to be set on getting this complex scheme right.
Flood Re, like all reinsurers, will be permitted by financial regulation only to carry out the business of reinsurance and related operations. Flood Re directors also have to be able to fulfil their prudential and fiduciary duties according to company law and financial services regulation. The Government see that as the best approach to the funding and administration of Flood Re to achieve the objective of affordability and availability of flood insurance.
Having made quite a technical, geeky speech about details, I will finish by saying that, in the end, we have to step back to where we were coming out of the floods. We were potentially facing a crisis in insurance. All of us would have received emails, letters and pleas from constituents desperately worried about insurance.
The proposal achieves two basic principles that should be dear to us all. The first is the principle of universality—in other words, to ensure that simply because somebody is unlucky enough to live in house, perhaps built 300 years ago, that has been flooded, perhaps due to changes in climate and matters well outside their control, they should not suffer unduly. Secondly, it should be a progressive measure that ensures that the least well-off members of society are paying less than the better-off in the premiums they pay and the benefits they will receive from these schemes.
On that, Mr Nuttall, I commend the statutory instruments to the House.
Barry Gardiner (Brent North) (Lab)
It is a pleasure to rise to talk about these regulations under your guidance, Mr Nuttall. I do not intend to oppose either of the regulations before the Committee, but I must highlight two serious concerns that I have with the transition to risk-reflective pricing that the scheme is designed to achieve.
First, it is likely that the transition will compromise the availability and affordability of flood insurance, and that needs to be recognised. It is also likely that Flood Re will prove to be a waste of public money. Before I go to the specific points about the wording of the regulations, I want to put those remarks in context.
Flood risk is increasing because of climate change and new developments in flood-risk areas. Awareness of flood-risk households, where the risk is above one in 100, has declined. Government spending on flood defences fell over the past Parliament, although by setting a six-year framework the Government claimed to have spent more than the previous Government, though that was, of course, over a five-year period. It is set to fall further in this Parliament.
The risk of flooding is increasing and more properties are being built in high-risk areas. There is declining spending on flood-risk reduction and declining awareness of flood risk. That is the context for the Flood Re scheme. The possibility of loss, damage and injury from flooding is, therefore, increasing—in every sense, flood risk is increasing.
The scheme does not address the rising cost of flood risk for affected households or the public purse. The Government voted against six amendments that we tabled in Committee on the Water Act 2014 that would have required Flood Re to reduce the cost of flood risk. Those amendments would have required the scheme administrator to take account of actual and projected future flood risk as set out by the Committee on Climate Change and the Environment Agency. The Government refused to do that.
We would have given the scheme administrator powers to require flooded households to repair to a higher flood-defence standard. The Government say that that might be considered at the first review. In my view, those powers should be with the scheme administrator from the beginning and I believe that the industry would probably share that view.
The amendments would have required that the scheme administrator had to increase awareness of flood risk among policyholders, and actually take a proactive stance on liaising with policyholders on those matters. The scheme administrator would have been required to ensure that insurance is available to households that are unable to afford insurance on the free market.
The Government declined to support those amendments. I was delighted to hear that the Minister had spoken to Lord Krebs earlier today; when we tabled those amendments, it was Lord Krebs, as chair of the adaptation sub-committee of the Committee on Climate Change, who provided the supporting evidence. I am keen to hear what Lord Krebs had to say to the Minister about those aspects of the scheme. Of course, that view was also supported by evidence from the London School of Economics at that time.
As I said, our amendments were disregarded; the Government are using this publicly funded flood insurance scheme to insure against the cost of their own potential failure. As investment in flood defence is cut in line with the Government’s plans, thousands of families may find themselves stuck in homes that become more and more expensive to insure. Climate change has already increased the frequency and severity of flooding, and the costs are rising. This publicly funded scheme allows the Government to transfer these costs on to households across the country, pushing the cost of climate change on to the most vulnerable. That is what risk-reflective pricing means in practice.
I return to my two specific concerns with the regulations as they stand. The public consultation on Flood Re, which ran from 22 July to 16 September 2014, stated that the aim of the proposed flood insurance scheme would be
“to ensure that domestic property insurance continues to be widely available and affordable in areas of flood risk, without placing unsustainable costs on wider policyholders or the taxpayer”.
However, there is no mention of the availability or affordability of flood insurance in this enabling legislation. They are mentioned in the explanatory notes and were referred to many times during the debate on the enabling legislation, but they are not in the regulations, so it is not a duty of the scheme to ensure the availability and affordability of flood insurance.
Many responses to the public consultation counselled that to ensure availability and affordability, the scheme must be required to work in the public interest, with that being defined in the regulations. It is not defined in these regulations. Many responses, including that from the London School of Economics, also warned that the absence of a transition plan would threaten the availability and affordability of Flood Re.
It was my view, and still is, that a Flood Re transition plan should be produced by the Government, in consultation with the scheme administrator, the industry and the Committee on Climate Change. The primary delivery body for the transition plan should be the Flood Re managing agent, the scheme administrator, and DEFRA should take responsibility for reviewing their performance against the time-bound goals of the transition plan. Transition needs to be planned within the context of the overall flood risk management strategy, including details of future investment levels.
The decision to delegate transition planning to Flood Re, as currently proposed, is really a mutually convenient abdication of responsibility. The Government do not need to assess the likely efficacy of Flood Re against their flood risk investment plans, and the insurance industry can be confident that it can deliver its only objective: to manage the transition to risk-reflective pricing. I do not mean to labour the point, but the industry has simply got to produce risk-reflective pricing, which, if the risk goes up, may be as high or much higher than what is today deemed to be an unaffordable cost.
Everything depends on the amount of money that the Government are prepared to put in. This scheme is a way of avoiding the problem and any need to make the uncomfortable acknowledgment that the price that reflects increased risk will be greater where the risk of flood becomes greater as a result of lower Government investment in flood defences, increased building on the flood plain or adverse climate change. That is the fear. Quietly and stealthily, the Government have delivered a new flood tax.
The adaptation sub-committee of the Committee on Climate Change suggested an amendment to the levy arrangement, which I believe the Government should have considered. The amendment would reduce the cost and the opportunity cost of the Flood Re funding arrangements.
The sub-committee also suggested that a more efficient model would be for Flood Re to collect a primary levy and to build reserves, but not to hold reinsurance at all. Instead, claims in excess of reserves would be mutualised—spread between the relevant insurers—on an annual basis via the ad hoc levy. If that resulted in a large claim on insurers, they would be able to call on the existing reinsurance treaties that they are required to hold in any event. That approach would have significantly reduced the costs of Flood Re and, in my view, it would improve the value that the public purse was getting from the scheme.
In summary, Flood Re could help to reduce flood risk, the cost of flooding and the pain and suffering of the households that the Minister eloquently discussed at the beginning of this debate. It does not do those things currently, and I fear that it may well waste public money that could be better spent on reducing those flood risks by increasing our flood defences.
Richard Benyon (Newbury) (Con)
I do not intend to detain the Committee for long. I add my congratulations to the Minister and all the others involved in getting us to the point—next April, I think—where the programme goes live. The team of officials supporting my hon. Friend have done extraordinary work over the last four or five years. They have even found success in working with the Treasury—and that, in the annals of Government, is something to be celebrated. I also include Huw Evans, the chief executive of the ABI, and his predecessor, who attended many long meetings—some in Downing Street, some at DEFRA—trying to bolt together something that would work.
It is worth, for just a few seconds, thinking about where we were. The statement of principles that so many Members on both sides clamoured for the coalition Government to continue, to roll over into the future, never could have been continued. First, it was time-limited; secondly, as my hon. Friend the Minister said, it had no limit on price. It was going to cause, as increased flood risk continued, a serious problem for constituents such as mine. In 2007, 3,000 households were flooded in west Berkshire and the stress and strain of that experience continues every time we have periods of heavy rain. Although many measures have been taken to stop such floods from taking place, we can now give people the added security of affordable, available—and it is available—flood insurance that will make an extraordinary difference.
There were those who put pressure on us to say that the market could not cope and therefore the solution had to be statist. They were asking us to go down a route rather similar to the United States flood insurance fund, which is costing the US taxpayer—unfortunately, it is a bankrupt system. The threat of a large-scale flood event has caused that scheme to be practically unaffordable in the United States; that proves that we were right to try for a hybrid solution, working with the industry, in which the Government put in a commitment and legal framework to try to set up something that works. Our scheme’s great benefit is that those with the broadest shoulders will bear the biggest burden.
The aim—this is what I want to press my hon. Friend the Minister on—is to move fast towards encouraging and incentivising households up and down the country to realise that if they take measures to secure their house against flood risk, they will benefit. They will start to be able to look at bespoke offers from insurance companies that will create great specialisms in this area. They will be able to have affordable solutions that will benefit them in the years to come. I dispute the idea that Flood Re is a waste of public money; I think it is vital spending that will be welcomed by hundreds of thousands of people up and down the country.
Flood spending has to increase, and I dispute the assertion of the hon. Member for Brent North that it does not. The Opposition amendments in Committee would have required us to go back to the Association of British Insurers and it to go back to its members and say, “Look, we have to tear up these very complex financial models that we have been working on for months and months to dance on the head of a pin.” At the end of the day, it would have failed. The Minister and his Department need to feel confident that they have brought forward the best possible solution that will be welcomed by households up and down the country.
Rory Stewart
First, I pay tribute to the two Members who have made speeches, which were important in setting the context of the debate. They know the issue well. My opposite number, the hon. Member for Brent North, clearly laid out the context of rising flood risk and climate awareness and made us focus us hard on the issues of future flood resilience and the future costs of flooding. I will return to that at the end.
I particularly pay tribute to my hon. Friend the Member for Newbury. This legislation is, in the normal practice of politics, a great idea that will make a lot of difference to some of the most vulnerable people in society: the 2% who are about to lose their flood insurance or face completely unaffordable levels of flood insurance.
The regulations address the situation of people who are absolutely desperate. It would be a great pity if what is basically a good news story—however we disagree about the details of its exact implementation—about providing coverage for those people at an affordable rate were lost in discussions about the minutiae and different details. What will matter to householders is that they can get insurance at an affordable rate and it is progressive, with the rate paid by poorer households lower than the rate paid by wealthier households.
James Heappey (Wells) (Con)
I thank the Minister and his predecessor for all their work on this issue. The regulations are hotly anticipated in Somerset, where they will bring not only insurance for many households, but real peace of mind. For two winters since the last major flooding event in the county, people have known that their homes have been uninsurable. The regulations are welcome, and I place on the record the enthusiasm of Somerset for all the security that they will bring.
Rory Stewart
I am grateful for that statement. I hope that right hon. and hon. Members will be able to communicate to their constituents and those concerned with flooding not only that we have managed to get to this stage, but that we are looking forward to next spring when the scheme is formally launched.
I want to touch briefly on the various points and criticisms made by the hon. Member for Brent North. I find some of them a little bewildering, and I would like to tease them out a bit more. His arguments seem to focus on four areas: awareness, affordability, the transition plan and the model of insurance.
To reassure him on awareness, an obligation is imposed through the regulations on Flood Re to communicate with the insurance industry and on the industry to communicate with the policyholders that they have entered the Flood Re scheme and that by definition they are therefore in the approximately 2% most vulnerable homes. Through the Environment Agency and our investment in new technology, we are absolutely committed to increasing our contact with people in the most vulnerable homes.
We have also been meeting in detail with different parts of the industry that are interested in providing flood resilience measures to individual households. There should be a potential market, and we need to develop it. Just as house and contents insurance has delivered developments in burglar alarms and other protective measures, it should be possible for flood insurance schemes eventually to drive a movement towards people taking resilience measures to drop their premiums. That is where we need to get to. We need a thriving, vigorous industry with a reasonable basic standard that can be offered to a household, saying, “If you do, x, y and z, the insurance industry will recognise that and drop your premium.”
Barry Gardiner
I am grateful to the Minister for his clarification of the points. Given that he believes there is not yet a certifiable standard for resilience measures to be put in, why does he seek not to give the power to the scheme administrator and Flood Re at this stage? They believe that such a facility is in place and that they can insist on resilience measures being put in as a condition of reinsurance. Why not give that power so that the industry can decide how it uses it, when it uses it and whether the market is ready to provide the appropriate benefits or not, rather than waiting for the Government to do a review and then decide whether they want to give the scheme administrator those powers?
I understand the problem. It may be that the market is not yet ready, but surely it is better to give the power to the scheme administrator straight away, so that the insurance companies can take the necessary action the moment they are ready, rather than waiting for a Government review.
Rory Stewart
There are essentially three separate problems with that proposal. The first is that the Flood Re administrator has no direct relationship with households. As the hon. Gentleman is aware, the Flood Re administrator’s relationship is with the insurance industry, and the relationship of the individual insurance companies—for example, Direct Line or Axa—is with the individual household. Whatever measures one is trying to put in place, there needs to be an interaction between the insurance company and the individual household.
The second issue is around the nature of the financial regulations that set up Flood Re. Flood Re, like all reinsurers, is only permitted by financial regulation to carry out the business of reinsurance and related operations.
The third issue—perhaps the most important—is that within three months, Flood Re will produce a transition plan and within two years those resilience measures will be in place. However, in the end it is primarily the responsibility of Government to work with Flood Re, the insurers and the households to get those measures in place; the constraint on that, as the hon. Gentleman has indicated, is that the industry is not yet sufficiently developed to offer a standardised package. A burglar alarm is a much more straightforward thing.
Every one of these properties—not quite every one, but many of them—are in quite difficult, unique situations. The insurance industry is not yet in a position to be comfortable saying, “This exact measure on your door will reduce your insurance premium by £50”, in the way that it can with burglar alarms. It will take some time for what is basically a structure of small and medium-sized enterprises to be able to develop those products for the insurance industry.
The way in which the hon. Gentleman and I can engage in this process most directly is through the measures taken by the Environment Agency and, for the hon. Gentleman, more specifically through Parliament, to which Flood Re is accountable. It will be through Parliament’s review of that three-month transition plan and the two-year actions that we will be able to put in place the measures that we need over the next 25 years.
Of course, the hon. Gentleman is right to say that the fact that the period is 25 years should not mean that we all go to sleep for that time, do nothing and end up dropping off the edge of a cliff. Twenty-five years should be able to give us the right path to get those proper structures in place. It is Parliament’s responsibility to stay on top of that issue.
The second thing that the hon. Gentleman touched on was the question of affordability. He is correct that these statutory instruments do not deal with the duty of affordability. However, he will be aware that the duty of affordability is contained in the Water Act 2014, the debates on which he himself contributed to. Therefore, I do not believe that the duty needs to be in these statutory instruments.
Again, a statutory obligation is imposed through these statutory instruments to push forward with a transition plan. The most sophisticated arguments that the hon. Gentleman has made are around the question of mutualisation and insurance.
Barry Gardiner
There is something I would like to get on the record, Mr Nuttall. Importantly, the Minister has said that he believes that as the duty of affordability is latent within the 2014 Act, it need not be in these regulations. I do not want to tie him down, because I want clarity, but I would like him to write to me, perhaps after this debate, to set out absolutely clearly that that is the position. That would be extremely helpful.
Rory Stewart
I will be delighted to. To clarify, we have to be very careful about what we mean by affordability. Clearly, under both domestic and European legislation, we are not allowed to fix prices. This is a market mechanism. We are relying on competition in the market to operate, the theory being that there would be no reason for an individual insurance company to place a £250 contract with Flood Re if it was not necessary to do so, because a competitor insurance company would be able to offer the same insurance for £50 to the householder and there would be no recourse to Flood Re.
All our affordability calculations are predicated on the assumption that normal market competition will operate. The affordability works through setting the individual premiums and guaranteeing that the £180 million pot will stand behind those individual payments, capping both the premium payment and the excess payment. That is its basis.
Barry Gardiner
I am really grateful to the Minister for engaging in this way. I understand what he says about affordability. On his definition, as long as the market is operating to have competition in place, the result is affordability. However, it is important to recognise that the risk of climate change is increasing and the severity of floods may also increase.
Although, in the purely technical sense that the Minister outlined, if the market is operating people are likely to get the lowest market rate, the ordinary householder may not experience affordable insurance premiums because the risk is increasing and the Government are building on the floodplain. In fact, all the industry has to do is ensure that the price reflects that risk.
Rory Stewart
From the insurance company’s point of view, in the case of the households that are most at risk, Flood Re provides the ability to lay off the flood component of its household and buildings insurance, which for a basic rate council tax payer is in the region of the £220 to £250 mark. There would be no reason for an individual insurance company to make the flood component of its insurance exceed that amount—that is the purpose of the £180 million pot.
I agree, however, with the hon. Gentleman on the basic questions with which he began, and we certainly need to look at this during the next 25 years: building on floodplains, climate change and increasing flood risk. That will have an impact right across the industry.
Richard Benyon
I agree entirely with my hon. Friend. Can I urge the hon. Member for Brent North to be careful about making bland criticisms such as those about building on floodplains? London and York are floodplains. Do the comments apply to those great cities? The issue is about how we build on floodplains and how much flood resistance there is. We can all think of buildings on floodplains that were lunacy and should never have happened—perhaps the Environment Agency was ignored—but such sweeping statements on this important issue need to be qualified carefully.
Rory Stewart
I am grateful to my hon. Friend, who is correct. Building on floodplains is a question of doing detailed calculations; the point is not that floodplains cannot ever be built on. Scotland provides a good example in the constraints that it has placed on building on floodplains, but Scotland has certain advantages in terms of population movements and the nature of the land.
As my hon. Friend said, there are technical solutions that allow for building on floodplains in Britain in a more sensible fashion, but most important of all is the natural capital calculation. We need to be much more realistic about looking at the social and economic costs of building on floodplains. What are the likelihoods of a risk? How much is that likely to cost the householder? How much misery and distress is that likely to cause them? What impact might that have on house prices? When all that is taken into account, someone might still, for particular reasons, decide to build on a floodplain. There could be very good reasons to go ahead, but they must ensure they have gone through the due diligence and looked at the potential costs and risks of doing so.
That brings me to my conclusion. This has been a good and testing debate, as I have come to expect from the hon. Member for Brent North, and it means that we are now one step closer to ensuring affordable insurance. I am reassured that the Opposition are not challenging the measures. I think Members across the Committee would agree that the work done over the past few months by my hon. Friend the Member for Newbury, by the insurance industry and by many of our civil servants—who must be both relieved and exhausted at reaching this stage—has brought us to a pretty impressive model.
I would like the United Kingdom to boast about and share this model with the rest of the world, so that others can see how we have addressed the issue in a pragmatic and focused way. We have done it by working with the insurance industry instead of against it. We have included a very broad sweep of universal provision and have taken into account questions of transition. We have set up a 25-year process. All that shows long-term strategic thinking and market focus, which we should be proud of.
I thank the Committee for the opportunity to set out the Government’s approach on Flood Re and the insurance industry for its hard work. This legislative framework is a good model for balancing pragmatic considerations of how a scheme can operate with public policy objectives. I commend the regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015.
Draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015
Resolved,
That the Committee has considered the draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015.—(Rory Stewart.)