Water Bill

Baroness Northover Excerpts

Monday 31st March 2014 Lords Chamber

Moved by

[Baroness Northover]

88A: Clause 51, page 108, line 2, leave out “relating to flooding” and insert “arising from a flood”

[Baroness Northover (LD)]

My Lords, in moving government Amendment 88A, I wish to speak also to the rest of the government amendments in the group.

This group of amendments includes the government response to the Delegated Powers Committee on the flood insurance clauses. There are also a few minor changes, including some further transitional measures, to improve the Bill.

The first set of these amendments—Amendment 88D and Amendments 90C to 90G—is in response to the Delegated Powers Committee’s recommendations on the flood insurance measures. The Government take these points very seriously and have tabled amendments to take them into account. This includes using the affirmative resolution procedure for all regulations and placing some of the definitions in the Bill. Following the committee’s report on the amendments, we nevertheless take the view that Clauses 58 and 61 should remain affirmative on the first exercise only. The amendments also provide for some of the definitions to be amended by regulations.

We agree with the committee that the definitions are important and we take its point about defining them in the Bill. However, we remain of the view that the definitions of “flood”, “household premises” and “relevant insurer” are best set out in regulations, which are more flexible, should we need to change them over the lifetime of the measures. We hope that, by defining these terms in regulations that will be subject to the affirmative procedure, we have reassured noble Lords of our intention that Parliament is able to scrutinise these definitions fully in due course.

We thank the committee for recommending that the powers to share information on council tax data are subject to the affirmative procedure. However, to meet the commitment to establish Flood Re in 2015, we need to release the information immediately after Royal Assent, and have therefore decided to address the committee’s concerns by placing the powers in the Bill to ensure that Parliament can scrutinise them now. We hope that noble Lords understand the rationale for this, due to the challenging timetable to deliver Flood Re.

Although Amendments 90CA to 90CD provide for rather than mandate the release of council tax data in the Bill, I should make it clear that the Government are committed to doing so, and to do so swiftly following Royal Assent.

Insurers will be required to have in place appropriate but proportionate security measures for the protection of the data disclosed pursuant to this clause. As much of the data to be disclosed at this stage are already in the public domain, it has been agreed that the controls are sufficiently robust for additional criminal sanctions not to be required. However, the amendment also allows for the application of a criminal sanction at a later stage, should the Government need to regulate for the release of additional information. It is right that we have the powers to protect the release of further information in future, but the criminal sanction is not automatic and we will consider whether one is necessary, following consultation.

On Amendment 90A on Flood Re’s reserves, we have previously discussed amendments to the rules surrounding the scheme’s reserves, and will come on to discuss reserves later in this debate. Having consulted further, and to ensure that this power in Clause 53 cannot compromise the sound operation of Flood Re and its orderly management, we are tabling this small change to make clear that the scheme administrator’s consent is sought before making regulations in this area. This consent means that the scheme administrator is able to object to any prudentially unsound proposals, as well as to make representations as to the retention of some or all of the reserve. Consequently, there is no longer a need for a requirement to consult the Prudential Regulation Authority as well. I reassure noble Lords that both the Prudential Regulation Authority and the Financial Conduct Authority will continue to be closely consulted on this and all other regulations made in relation to the Flood Re scheme.

Amendment 88B covers the eligibility threshold and is intended to ensure that the legislation properly reflects the operation of the Flood Re scheme, and the way the insurance industry operates.

Amendment 90T addresses the risk that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. We have every intention of carrying out a full consultation before making that secondary legislation to ensure that any private interests are properly considered.

Amendment 90L is intended to ensure that employment contracts within the scheme are transferrable, where they otherwise might not be. I reassure noble Lords that this amendment is not intended to enable the transfer of reserves required to be retained for prudential regulatory purposes.

In addition, the Government have also tabled a small set of minor and technical amendments to the Bill. We have also corrected an error in Schedule 3 to the Flood and Water Management Act 2010 to ensure that unused bond funds, called in by a SuDS approving body, can be returned to the right person.

Finally, Amendments 91B to 91D provide the Secretary of State with powers to introduce provisions to allow Ofwat to revoke existing water supply licences as part of the transition to the new water supply licensing regime. The power provides flexibility for Ofwat to allow existing licences to continue until new licences are available or until they are revoked on a specified day.

Amendment 91B enables the licence modification powers to work in such circumstances. The order can provide for more detailed arrangements to be set out in a scheme produced by Ofwat, subject to the requirements of the Secretary of State’s order. The order also provides for compensation to be payable to the holders of revoked licences. The measure of compensation may depend on various factors, including, for example, whether the licence holder qualifies to hold a new licence in the reformed water supply market.

The amendments also make transitional provisions for existing sewerage arrangements with incumbents that become licensable arrangements under the new sewerage licence. Compensation is payable if it is no longer possible for some sewerage arrangements to continue because a licence is required. Again, the qualification of the operator for a licence would be a relevant factor. Amendment 91C corrects a small error in paragraph 6 of the schedule. I hope that noble Lords will be happy to support these amendments.

[Earl Cathcart (Con)]

My Lords, this is the first time that I have spoken on this Bill on Report, so I should declare that I live in a band H property on my farm in Norfolk, I have a bore hole and I have spent about 30 years working and underwriting in the insurance industry. I am happy with these government amendments, but will the Minister clarify government Amendment 90L to Clause 70? I am afraid that I did not quite catch the Minister’s assurance about capital, so I am asking her to say it again, please. The current wording is far from ideal, in that it could potentially raise the possibility that Ministers could access Flood Re’s funds when the scheme is wound up, irrespective of their being needed for, for example, meeting regulatory run-off requirements.

I understand that Defra has said that an override to access Flood Re reserves is not the intention of the amendment to Clause 70. However, the concern is that in 20 or 25 years it could easily be interpreted as an opportunity to grab funds from Flood Re. Will the Minister make clear that the amendment is not intended to apply to Flood Re’s reserves or capital? That would be most useful.

--- Later in debate ---

[The Earl of Lytton (CB)]

My Lords, this is the first time that I have spoken at this stage of the Bill and I, too, must declare that I live in a band H property. However, I also have a professional interest in parts of the Bill by virtue of being a chartered surveyor. I certainly welcome the proposals for the affirmative resolution procedures outlined by the noble Baroness and agree that the disclosure of council tax information is necessary. However, I have one query, which relates to Amendment 90CD. Could the noble Baroness confirm that the normal process of disclosure will generally relate to the identity of the property and its council tax band rather than the identity of the chargepayer, the latter being something that is normally held by the billing authority? If I have missed some point about the disclosure, and where the identity of the individual can be discovered, perhaps she would put me out of my misery.

[Baroness Northover]

I hope I can put everybody out of their misery, which probably reflects the fact that I rattled through this in six minutes. First, I will take up the points made by my noble friend Lord Cathcart. We will come to a further discussion of reserves later, in which I am sure he will be interested. I make it clear that Amendment 90L is intended to ensure that employment contracts within the scheme are transferable, where otherwise they might not be. I reassure him that the amendment that he mentioned is not intended to enable the transfer of reserves that are required to be retained for prudential regulatory purposes. I hope that reassures the noble Earl on that particular point. I probably just went too fast on that one.

I am very grateful to the noble Lord, Lord Whitty, for his general support for these amendments. In response to the points he raised, I recognise fully, as a member of the Government, that the best thing to do when the Delegated Powers Committee comes forward with recommendations is to agree. However, he will also be aware that there are times when the affirmative procedure is used in the first instance and not thereafter because it is not anticipated that there will be significant changes later. I am sure that the noble Lord, Lord Whitty, will be very familiar with that pattern.

The noble Lord asked about hybridity. I will just go back to my original comments on that and then come to what I have been handed by way of inspiration. Amendment 90T addresses the risks that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. The noble Lord thought that we had indicated in some way that we were just sweeping that aside—at least, I understood him to indicate that. I repeat that at the end of Flood Re we have every intention of carrying out a full consultation before making secondary legislation to ensure that any private interests are properly considered. I hope that the noble Lord is reassured on that point.

Perhaps I may write to the noble Earl, Lord Lytton, with further details on the point that he raised. I am sure that we can reassure him.

I am just checking to see whether I have covered everything. I trust that I have and am sure that noble Lords will make it very clear if I have not. I hope that, on that basis, they will accept the government amendments that I laid out at such speed.

Amendment 88A agreed.

Moved by

[Baroness Northover]

88B: Clause 51, page 108, line 8, leave out subsections (3) to (5) and insert—
“(3) The Secretary of State may by regulations make provision as to levels of reinsurance premiums payable by relevant insurers under the FR Scheme, and may make different provision for different purposes.”

--- Later in debate ---

Moved by

[Baroness Northover]

90A: Clause 53, page 109, leave out line 10 and insert “obtain the consent of the FR Scheme administrator, which is not to be unreasonably withheld.”

--- Later in debate ---

Moved by

[Baroness Northover]

90B: Clause 54, page 109, line 26, at end insert—
“( ) Regulations under subsection (1) may require the FR Scheme administrator to provide the following information to relevant insurers who have issued insurance policies that are reinsured under the FR Scheme, so that those insurers may supply the information to holders of those policies—
(a) information about how to find out about the levels of flood risk to which an area in which household premises are situated is subject and how any flood risk may be managed;(b) information about the FR Scheme, including information about the effect of section 51(2)(b) (transition to risk-reflective pricing of flood insurance for household premises).”

[Baroness Northover]

My Lords, in Committee, the noble Lord, Lord Krebs, tabled an amendment which sought to require the Flood Re scheme administrator to increase awareness among the beneficiaries of Flood Re about their local flood risk. We are very grateful to the noble Lord, Lord Krebs, for highlighting this important matter. In Committee, we explained that we agreed with the intention behind the noble Lord’s amendment and agreed to consider this further and return to it on Report. We think it is important that policyholders whose buildings, contents or combined insurance policies are ceded to Flood Re know about their flood risk so they can take simple measures such as signing up to free flood warnings as well as investigating longer-term options for managing their flood risk.

To plan for the future, these households also need to understand the likely impact of the transitional nature of the Flood Re scheme, which is subsidising their premiums. I am therefore today bringing forward Amendment 90B, which would allow the Secretary of State to require Flood Re, through regulations, to provide information for relevant insurers to pass on to their policyholders who will benefit from Flood Re. The information would cover the Flood Re scheme, flood risk and actions that householders can take to reduce the risk and impact of flooding. Our expectation is that standardised information will be sent to the customer by the relevant insurer that is ceding the policy to Flood Re. This makes sense because it maintains the relationship between insurers and their customers. Flood Re will need to work with the flood risk management authorities in the UK to ensure the information about flood risk is accurate and appropriate.

As a consequence of this amendment we are also making three other minor amendments, Amendments 90H, 90J and 90K, which affect Clause 69 and give the Secretary of State powers to make regulations defining “flood” and “flood risk” in the context of Flood Re and not just in the context of the flood insurance obligation, as was the case previously. I beg to move.

[Lord Grantchester]

My Lords, I rise to speak to Amendment 90CE, which is grouped with these amendments. I was slightly confused as to whether the Government were putting their name to our amendment, because I noticed that we have a little “g” in front of our Amendment 90CE. But I will take that as a misprint and that I must still convince the Government of the merit of the case.

The amendment would put in place regulations that would add clarity to set the date of commencement for Flood Re. It would also create a database of properties at risk of flooding and indicate whether the property is covered by the flood scheme. The amendment will insist that the database must be set up before Flood Re starts, as that would be logically helpful.

I begin by welcoming the Government’s helpful concession, particularly in Amendment 90B, which sets out regulations to allow insurers to provide information to policyholders in the scheme. We are glad that the Government have listened and acted on our concerns expressed in Committee with the introduction of their amendment, but we still feel that it does not go far enough. Delivering information to those already in the scheme—that is, policyholders—is helpful as far as it goes. Although it is important that insurance companies are well equipped and able to deliver information to policyholders in relation to the flood scheme and how they can protect their properties adequately, we believe that the database proposed by our amendment would be a lot more useful, primarily for potential homeowners but also for mortgage lenders. It has become much more difficult of late for people to get mortgages and it is even more difficult to get a mortgage if the mortgage lender is at all concerned about damage from flooding. As such, information should be provided to homebuyers at the start of their journey of finding a home rather than further along the process, after they have agreed with the vendor on a purchase or when they are at the stage of consulting mortgage companies after engaging solicitors. The database must be accessible to everyone and allow them to check whether a property for sale or rent is covered by the scheme and highlight its risk to flooding. This would prevent the all too recognisable reality experienced by people in the recent flooding whereby home owners were blindsided by their properties flooding and then found themselves caught when their insurance companies reassessed their policy terms. The database would also avoid the scenario whereby a home owner may believe that they are covered by Flood Re when in reality they are not.

It is a very straightforward amendment, which brings the whole subject of the database and properties into the public domain. It would add transparency and clarity to the scheme. At present, with the complicated nature of the scheme, especially in terms of eligibility, we should do all that we can to assist those potentially affected by the scheme by making them all the more aware of where they stand with regard to flood insurance on the property that they are inquiring about, not just once they become policyholders. We have already heard today of the complexities behind the scheme as regards leaseholders, as well as the exclusions for small businesses and other aspects.

[Baroness Northover]

My Lords, I thank the noble Lord, Lord Grantchester, for tabling Amendment 90CE, which proposes a publicly searchable database of flood risk. I am desolate that I must disappoint him as we cannot accept the amendment even though it does have a little “g” in front of it. Nevertheless, we agree with the intention behind the amendment that households that are ceded to Flood Re should be made aware of their flood risk. Knowing about flood risk is essential to helping affected households to manage their flood risk effectively, both in the short and long term. That is why we have recently published a note entitled Homebuyers and Their Flood Risk, in which we have explained the information currently available to prospective homebuyers.

It is a well established principle of the conveyancing process that the onus is on the buyer of a property to conduct their own searches and investigations into the potential risks to that property. In England, the Environment Agency provides a freely accessible resource of flood risk information for any area. Anyone may use this service to identify whether their post code is at risk of flooding from rivers, the sea or surface water. Similar resources are available to households in other parts of the UK. Should a household wish to identify flood risks specific to their property, commissioning a flood risk survey from a suitably experienced professional would identify the ways in which water can enter a property and what measures could be taken to prevent or limit possible damage. We believe that requiring Flood Re to help insurers guide their customers to information about flood risk and how to manage it will add significantly to public awareness of flood risk. That is why I moved Amendment 90B and I thank the noble Lord, Lord Grantchester, for his welcome of it. I hope therefore that noble Lords are willing to accept the government amendments in this group and that the noble Lord will be content not to move his amendment.

Amendment 90B agreed.

Moved by

[Baroness Northover]

90BA: Clause 54, page 110, line 23, leave out paragraph (a)

--- Later in debate ---

Moved by

[Baroness Northover]

90CA: Clause 56, page 111, line 14, leave out subsection (1) and insert—
“(1) The Commissioners for Her Majesty’s Revenue and Customs may disclose relevant HMRC council tax information to any person who requires that information for either of the following descriptions of purposes—
(a) purposes connected with such scheme as may be established and designated in accordance with section 51 (in any case arising before any scheme is so designated);(b) purposes connected with the FR Scheme (in any case arising after the designation of a scheme in accordance with section 51).(1A) A person to whom information is disclosed under subsection (1)(a) or (b)—
(a) may use the information only for the purposes mentioned in subsection (1)(a) or (b), as the case may be;(b) may not further disclose the information except with the consent of the Commissioners.”

--- Later in debate ---

Moved by

[Baroness Northover]

90D: Clause 57, page 111, line 37, leave out “relating to the effects of flooding” and insert “arising from a flood”

--- Later in debate ---

[Lord Whitty]

My Lords, Amendment 90DA is relatively straightforward. Clause 63 provides for reviews and appeals against premises being deemed not eligible to be entered in the register of those covered by Flood Re. As it is written, Clause 63 indicates that when the register is drawn up there is a list of which households are either in or out, according to the risk assessment at the time.

This is a 25-year scheme and things will change over 25 years. My amendment is designed to add to the provisions of Clause 63 and appeal against the removal from that list at a later stage. It is really a tidying-up. However, removal from the list could arise for a number of different reasons. It could be because the insurance sector had decided that the risk had changed; but that could be because the Committee on Climate Change—the noble Lord, Lord Krebs, is no longer in his place—had advised of a change and that there was less risk in that particular area. It could be that the Environment Agency’s map had changed. It could be that the aggregated data from the insurance companies showed that that type of property was at less of a risk than it was assumed to be at the beginning of the scheme, bearing in mind that we are potentially 25 years on. It could be that resilience had been provided on some other basis—for instance, a flood defence scheme may have been built down the road—or that the catchment management in that area had significantly improved and diverted the flood away from that property to somewhere else. In an urban area, it could be that there had been major investment in the drainage system, which meant that the property was significantly less susceptible to surface flooding. There are all sorts of reasons why, objectively, the flood risk might diminish. Regrettably, in the light of the macro information from the Committee on Climate Change, it is more likely that a property will be drawn into the list than drawn out of it; but there will be such exclusions.

There could also be exclusions that are more esoteric to the insurance industry, in the sense that if insurance companies were insisting, as a condition of continued insurance, that that resilience measure should be introduced at the expense of the householder, one way or another, and the householders were not prepared to provide for that level of resilience expenditure, then either the offer, or renewal, of insurance would be taken away or the excess would be put at a level which the premium payer was not prepared to pay.

There are all sorts of reasons why a property might end up being removed from that list. If that is the case, there has to be the equivalent appeal against that in a situation where one is excluded from the list from the word go. As I read it, Clause 63 provides only for exclusion from the register in the first place; it does not provide for removal from the register. My amendment seeks to correct that gap. I beg to move.

[Baroness Northover]

My Lords, I thank the noble Lord, Lord Whitty, for this amendment. As we have previously discussed, a rigorous regulatory and dispute resolution regime for the insurance industry already exists, to ensure that insurers treat their customers fairly. Flood Re will not change the direct relationship between the insurer and the householder. Where households do not feel that a complaint has been treated fairly, they can contact the Financial Ombudsman Service, which offers a free dispute resolution service for people who wish to complain about how their insurance company has treated them. While the Financial Ombudsman Service is equipped to deal with individual complaints, the Financial Conduct Authority has a statutory objective to protect the wider interests of consumers and ensure that firms are giving a fair deal to their customers.

We need to remember that Flood Re is a voluntary scheme: insurers are not obliged to use it. We therefore maintain that there is no need for a specific appeal mechanism for Flood Re per se. Flood Re is not based on a register of properties; it is a voluntary scheme and so there are no grounds for an appeal mechanism.

However, the noble Lord is emphasising concern about who might be excluded from Flood Re over time. As was said in the other place, the memorandum of understanding agreed between the Association of British Insurers and the Government last year talked about genuinely uninsurable properties. As my honourable friend the Parliamentary Under-Secretary of State for Water, Forestry, Rural Affairs and Resource Management said, there will be no such thing as a genuinely uninsurable property at the start of Flood Re. However, there might be a case that over time, if householders choose to take no action to tackle their flood risk, Flood Re might seek to find a mechanism whereby they no longer benefit from the public subsidy. We have reflected further on that issue, working closely with the ABI. I can reassure noble Lords that our focus is on supporting households to become more resilient, not on excluding them from the Flood Re scheme.

As householders with policies ceded to Flood Re will be benefiting from subsidised insurance, important signals to them about flood risk—for example, the price of insurance and the levels of excess charged—will be lost. We have therefore agreed with the industry that Flood Re will provide information to insurers to pass to householders about flood risk, Flood Re itself and how to reduce the likelihood and impact of flooding. An amendment to that effect has been tabled.

We are continuing to explore with industry how people could be incentivised, perhaps, for example, by Flood Re paying for a survey after a property has flooded a number of times. My noble friend mentioned that. This would depend on Flood Re having sufficient reserves. Another incentive could be to increase the excess after repeated flooding.

There are a number of practical considerations to work through. However, there is a clear commitment between the Government and the insurance industry to putting in place an incentive-based approach rather than an exclusionary approach. I hope that noble Lords will also agree that the approach we have outlined strikes a fair and appropriate balance between supporting householders at high flood risk and the affordability of the scheme as a whole, and that the amendment will therefore be withdrawn, bearing in mind what I said at the beginning about the direct relationship between the insurance company and the householder and the means of redress that they can avail themselves of.

[Lord Whitty]

My Lords, I thank the noble Baroness for that reply but I am not sure that it entirely meets the point. As a former chair of Consumer Focus, I am very familiar with the steps that people can take to obtain redress from financial services agencies, including the insurance industry. I am perhaps slightly less sanguine about the effectiveness of it but that is a different matter. However, the fact is that the Bill provides for a register and, in Clause 63, provides for people to appeal against a body being excluded from that register in the first place. Unless I am completely misunderstanding the issue and what the noble Baroness said, I took it she accepted that there was a possibility of someone being excluded in one of the situations that I described—namely, when the insurance company’s request that the householder introduced some resilience measures at their own expense as a condition of continuing to have that insurance could lead to their exclusion from the list. All I am saying is that if there is an appeals process at the beginning, why is there not one all the way through? I may have misunderstood something that the noble Baroness said and the purpose of Clause 63.

[Baroness Northover]

Perhaps I can clarify at least one point in relation to Clause 63 and the register. Clause 63 relates to the flood insurance obligation. It is not relevant to Flood Re. However, I am happy to write to the noble Lord to clarify this area.

[Lord Whitty]

That would be useful for all concerned, so I will shut up. I am very grateful for the Minister’s offer to write to me. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Northover]

My Lords, I thank my noble friend for raising this issue again and other noble Lords for contributing their expertise. As we previously explained in Committee, the Government value and support the important work that internal drainage boards, IDBs, undertake to manage water levels, reduce flood risk and protect critical infrastructure. We want to ensure that they can carry out their work without unnecessary hindrance. Defra has also developed a close and constructive working relationship with the Association of Drainage Authorities, ADA. Defra officials meet with ADA on a regular basis, including through a technical advisory group, which meets quarterly, to discuss a wide range of issues relating to IDBs. It is helpful that my noble friends have raised this issue with us, as ADA had not highlighted this previously as a potentially significant or widespread problem.

We have since sought information on this issue from ADA, as my noble friend indicated, and are in continuing discussion with them. ADA has written to all 120 IDB clerks to gather their views on this issue. Responses have been received within the past month and I can update the numbers. From a small number of IDBs, five say that they have access to rating lists, while six have said that they foresee a possible need for an amendment such as this. We do not therefore yet have the evidence to demonstrate that the unavailability of rating lists poses a widespread practical problem for IDBs.