Water Bill

Earl of Lytton Excerpts

Monday 27th January 2014 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I rise with some trepidation because, although I can bring something to the discussion here on matters to do with the broad spectrum of water, I feel that I am a minnow in the presence of giants. I first thank the Minister for agreeing to meet me at very short notice today; I appreciate that very much.

I remind noble Lords of my interests as a landowner and member of the Country Land and Business Association, and president of the National Association of Local Councils and of one of its county associations. I am also a vice-president of the Local Government Association. More specifically, however, I am a practising chartered surveyor and a valuer, with a professional involvement in and some experience of risk and the effects of flooding; although in this particular instance I certainly defer to the noble Baroness, Lady Bakewell of Hartington Mandeville, and my noble friend Lord Cameron—who I see is not in his place—when it comes to matters to do with the appalling flooding we have seen on our television screens, particularly in association with the Somerset Levels. I add my sympathy to them, and to all others who have been appallingly affected by the flooding.

My first observation is that much of the Bill is left to regulation. So much, in fact, that the shape and dynamic of what we might ultimately be facilitating seems unclear. I can understand the desire to get paving legislation in place and discuss the detail later, but I am bound to say that it leaves me uncomfortable, particularly on matters to do with the flood reinsurance scheme. I would like to see some of those regulations brought forward.

My particular interest is of course in Parts 3 and 4 of the Bill. There are of course good and less good portions. Certainly, the possibility that through the Bill communities and property owners might increasingly work together to provide local flooding solutions is welcome. They need to be re-enfranchised. However, communities will need guidance, some powers and, above all, resources. Their efforts will need durability and continuity if they are to have any effect on perceived insurance risk, because diffuse and often voluntary activity is inevitably on the back foot in this respect.

Redefining the scope of the roles of the Environment Agency and Defra on flood defence is commendable and, in so far as there is to be any future investment, will be enormously welcome. However, a policy preference for conservation at the expense of basic flood protection must be revisited. When it comes to that, what about the legacy of flood defence infrastructure and responsibility for its future management? I refer, of course, to the system of levees, dykes, channels and so on, some of which have been in place for hundreds of years, which serve to protect land, homes, communication and service installations and, near my home in Sussex, a major international airport.

Understandably, people have put their trust in public stewardship, but in recent times watercourse management has been compromised by environmental objectives with failure to dredge, objections to spreading mud and silt on adjacent land, or cutting back vegetation. This needs to be rebalanced. Of course, environmental considerations are important, but so is the risk of flooding and the competence of these installations. Outside internal drainage board areas there is ignorance of the rural drainage network, its layout and capacity. There is a lack of any obvious responsibility for things such as roadside ditches or for preventing watercourses being compromised or destroyed.

The CLA expressed concerns to me that in many instances liability for flood defence infrastructure works may increasingly fall to the landowner by default. There are fears that this could arise simply by failure to maintain. The genesis of many of these works goes back to the fact that no private individual or group could effectively undertake to construct and maintain something on that scale. Of course landowners have responsibilities, but they cannot be open-ended. I shall press the Government to reflect on that in the Bill.

I also welcome the proposals for sustainable drainage systems. I regret that in many areas affected by overwhelming of sewers, no general requirement has been made to procure retroactive attenuation of runoff from pre-existing as well as new development. I look forward to seeing this addressed. I also welcome any moves to develop means of mitigating damage and reducing the vulnerability of existing at-risk property.

However, Part 4 probably concerns me the most. We have been living in a dream world in which reality has dawned as technology has closely identified areas of significant flood risk. I entirely understand the background and the need to move to move to the real market and actual risks, which is implicit in the Flood Re proposal. Remarkable though it is that it has taken so long to get to this point, the fact remains that universal cover for flood risk by an informal process of mutualisation is being broken up. Based on this we are told that the genie cannot go back into the bottle, and I agree with that. However, it is not known what other risks may be singled out in future. What about windy locations, or areas subject to possible landslips because they are on steep sites?

The issue is well illustrated on the Association of British Insurers’s own website. Like it, mortgage lenders are risk averse and expect borrowers to insure against all the “standard perils”, not least flooding in all its forms, including surface runoff. To the extent that properties are at any material flood risk but cannot insure, it is universally accepted that the lender’s requirement cannot be met and that this has consequences in terms of loan suitability.

The Government, to give them their due, have made a brave fist of quantifying the outcomes in their impact assessment, but the reality is that all such calculations are replete with highly sensitive variables which cannot be accurately quantified. Indeed, the impact assessment baseline assumptions are themselves questionable, let alone the “what-ifs” that arise under the various options. Precise numbers of properties at significant flood risk or actually affected by exclusion from Flood Re are a matter of speculation. I did not see much property valuer input to all this—I declare an interest again—and some of the justifications, such as that of insurance’s industry need to use automation, do not entirely convince me.

I worry that setting a limited range of property to be covered by Flood Re embeds in statute a form of market segregation of its own; the assumed continuation of risk bundling with other factors remaining constant cannot be guaranteed. My own belief is that we are in this situation precisely because trends in risk top-slicing, better knowledge and changing responses to risk are taking place.

The British Property Federation and the Council of Mortgage Lenders, with others, approached me with their concerns. They, too, operate on the basis that risks are bundled. They suggested that the limited coverage of Flood Re will by default take us into uncharted territory in terms of valuation impacts. This is complex and I am far from convinced that the market consequences have been fully explored by the Government.

Furthermore, despite the fallback provisions, I wonder about the Government’s agency cost recovery implications on the Flood Re fund. The list of exclusions is significant: much long leasehold and buy-to-let property, band H houses, all small businesses, homes built after 2009 and more will not come within Flood Re. It does not mean that they cannot get insurance of some sort. But all sorts of numbers of properties that would be most severely affected have been suggested. Whether or not they are excluded from Flood Re, the numbers that will thereby lose access to conventional loan finance—with or without an actual flood risk—is entirely unclear. We need to get to the bottom of that. It is the fact of exclusion that will start people worrying about their properties, especially when the statement of principles referred to maintaining,

“cover for domestic property and small business customers”.

We appear to have a form of partial retreat from that position. I regard that as unfortunate. Furthermore, I am not clear why second homes should be within the Flood Re scheme but band H properties are outside it. That seems wholly anomalous.

Evidence of value write-downs, though scant, I believe is none the less real. I recommend that the Government urgently look into this in more detail, together with lenders and property professionals, so that Flood Re does not result in adverse consequences on the rebound of what we may put in place under this Bill. That said, and in the absence of any better ideas, I am bound to admit that for all its imperfections and limitations Flood Re as a concept is the only solution currently on offer, and I support it on that basis. I wish there was something that would deal with the bits that it does not include. On that basis I can assure the Minister that he has my general support at this juncture, and I will do my best to work with him and his department to find ways through this complex issue, and to provide relief to those whom the scheme currently excludes.