Water Bill

Earl Cathcart Excerpts

Monday 27th January 2014 Lords Chamber

[Earl Cathcart (Con)]

My Lords, I congratulate the Government on bringing forward this Bill. We all take water for granted but we should not because it is our most precious resource. Until now, 95% of the water we get goes straight into the sea. I think that everyone welcomes making it a primary duty of Ofwat to secure the long-term resilience of water supply and sewerage systems. But should there not be a national policy statement for water? We already have one for waste water, so why not one for water supply—our most precious resource?

I will talk mainly on the Flood Re scheme, but before I do, I would like to make two points. First, the Government are trying to encourage landowners, such as farmers—I farm in Norfolk—to build reservoirs and then sell excess water to the water companies. At first, that seems a great idea, but I am sceptical about whether it will work as on-farm reservoirs will probably be too small to make any meaningful contribution. Even if they did, the quality of the water from the on-farm reservoirs may not be very good, as it may have high levels of nutrients, pesticides and metaldehyde. There may also be problems for farmers piping excess water from their reservoirs across other people's land to a treatment plant.

We need the water companies to build more large reservoirs themselves to store the necessary water. In the south-east of England, the last time a reservoir of any size was built was probably the Bewl Water reservoir, which holds 7 trillion gallons of water over a site of 1,200 acres. It was built in the early 1970s; 40 years ago. Since then, the population and number of houses in the south-east have risen dramatically and will no doubt continue to rise dramatically. It is alarming that the Office for National Statistics estimates that if the current trend persists, the population of this country could double over the next hundred years—a frightening thought. If we do not build more reservoirs to capture water in times of plenty, all that will happen in times of drought is that the water companies will continue to extract water from the rivers, which by then will themselves be gasping for water.

Secondly, I share the concerns of those who say that it is cackhanded to be bringing in upstream competition in water trading before the existing water abstraction system has been reformed, given that the Environment Agency says that many rivers are already overabstracted and overlicensed.

Moving on to Flood Re, I have been an insurance underwriter, including home owners’ business, and I have worked in the London insurance market for about 30 years. Hundreds of underwriting businesses make up the London insurance market and getting all those underwriters who write home owners’ business to make considerable compromises and agree willingly to this deal has no doubt been no mean feat. I have no doubt that negotiations have been very fragile and it has taken three years to get this far. The not-for-profit Flood Re mutual, which will be owned and managed by the industry, will offer flood insurance to the 500,000 home owners most at risk, with an excess of £250 and a premium of between £210 and £540, depending on council tax band.

The scheme helps to solve many of the current affordability problems, but there are a few exceptions. The first is that homes built after 2009 will not be covered. That is not a new exclusion. Every developer has known that under PPS25 homes should not be built in flood risk areas from that date. Underwriters were insistent that they did not want anything in the scheme that would encourage unwise or irresponsible development. Also, the Government emphasise that where the Environment Agency objects to a development on the grounds of flood risk, 97% of those risks are refused by planners, so that is good news. Or is it? Of the 455,000 planning applications, the Environment Agency looks at only 6.6%. Obviously, it cannot look at all of them, but 6.6% does seem worryingly low.

The second exclusion is small businesses, which buy commercial insurance that has a range of cover different from that of home owners: business interruption, loss of profits, different levels of stock cover and employer’s liability insurance, to name a few. The third exclusion is band H and I properties, on the basis that their owners should be able to afford the higher risk-reflective premiums, and be able to take the necessary actions to reduce their flood risk. Happily, my band H home is not in a flood risk area. Also, there is an understanding that genuinely uninsurable properties—properties that are continually flooding—should not be covered by Flood Re. However, it has not been possible to agree a definition, and I believe that negotiations are continuing.

Flood Re is a good scheme. It might not be perfect, and we could probably all pick holes in it, but it will offer flood insurance to the vast majority of home owners seeking it, at a relatively cheap premium and a low excess. However, I do have three concerns.

My first concern is our being tempted to pass amendments to this scheme with the best intentions that might render it unworkable. For instance, we might want to include small businesses in the scheme, because, after all, the Federation of Small Businesses reported that 20% of small businesses were affected by flooding in 2012. The Association of British Insurers and the Government looked at this and concluded that it threw up more problems than it solved, hence the agreed exclusion.

My second concern is that there is significant scope in this Bill for the Government to make secondary legislation. I do hope that this Government, or indeed, a subsequent Government, are not tempted to bring in any secondary legislation without first having consulted and agreed with the Association of British Insurers, so that any rules or refinements needed use Flood Re’s own procedures. We might then get the intended answer.

My third concern is the clauses relating to the flood insurance obligation. I understand that the Government feel that these are necessary in case Flood Re proves unworkable, but the obligation would be a very unusual measure that would effectively force a private insurance company to sell a product whether or not it wanted to do so. I hope the Minister can reassure the House that every effort will be made to get Flood Re up and running, so that the obligation will never be needed. I look forward to debating these and other matters in Committee.