Insurance Times reports:
“ Government flood spending ‘short-sighted’ – select committee
Spending on new defences must grow by £20m a year for the next 25 years, says report
The government’s decision to cut funding for flood defence maintenance is “short-sighted”, according a new select committee report on flood risk.
The report also urged the Department for Environment, Food and Rural Affairs (Defra) to boost spending on new defences by £20m a year for the next 25 years.
The Managing Flood Risk report, released this morning by the cross-party Environment, Food and Rural Affairs Committee, said increased funding for new defences is failing to keep pace with growing flood risk.
Flood defence spending has two main components: revenue expenditure and capital funding. Revenue expenditure covers maintenance of existing defences, while capital funding pays for new and improved defences.
Revenue expenditure was cut to £280m for 2013-14 from £295m in 2012-13. Capital funding was boosted to £294m (2012-13: £266m).
The select committee report said: “Reduced revenue funding in recent years has led to a failure to maintain defences and watercourses effectively. Pegging revenue investment close to current low levels is short-sighted and risks undermining the benefits of capital investment in flood defences.”
The report welcomed the increase in capital investment. But it added: “Even after increases announced in the 2013 spending round, investment remains insufficient to meet growing flood risk.
“With the likelihood of more frequent severe weather incidents leading to increased flooding in future, Defra must convince HM Treasury that capital investment from all sources must be increased by £20m year on year for 25 years to keep pace with threats due to climate and demographic changes.”
‘Disruption and distress’
Launching the report, committee chair Anne McIntosh MP said: “Record rainfall in the past two years has led to extensive flooding, cost the economy millions and caused disruption and distress to householders and communities across the UK.
“Additional capital funding for flood defences is welcome since every £1 spent on flood defences to protect communities spurs growth and delivers economic benefits worth £8.
“But spending on flood defences has not kept pace with rising risks from more frequent severe weather. The chancellor must ensure that investment increases by £20m year on year. We need that money over the next 25 years to protect homes and businesses better. Maintenance of these defences and effective dredging of watercourses must be a priority.”
The committee welcomed the introduction of the Flood Re plan, which aims to ensure affordable insurance for homes at a high risk of flooding after the expiry of the Statement of Principles.
However, McIntosh hit out at the time it has taken to get an agreement on how to replace the Statement of Principles.
She said: “Delay by the government and the insurance industry in agreeing provision of affordable flood insurance has caused a lot of householders unnecessary uncertainty.
“The opaque cross-subsidy provided in the current Statement of Principles must be translated into a more transparent scheme with clear and robust governance arrangements.”
Flood Re details
Flood Re will be run and financed by insurers as a not-for- profit fund which will cover the cost of flood claims from high risk homes.
Insurers will pass the flood risk element from those households deemed at high risk of flooding to the fund. Premiums for the flood risk will be calculated based on council tax banding up to a maximum limit depending on the band.
Flood Re would charge member firms an annual charge of £180m.This equates to a levy of £10.50 on annual household premiums and represents the estimated level of cross-subsidy that already exists between lower and higher flood risk premiums.
Flood Re will be designed to fully deal with at least 99.5% of years. Even in the worst 0.5% of years, Flood Re will cover losses up to those expected once in every 200 years – a year six times worse than 2007. The government will take primary responsibility – working with the industry and Flood Re – for distributing any available resources to Flood Re policyholders should claims exceed that level.
Providing operational issues, including governance and regulatory approval, are resolved, the aim is for Flood Re to be up and running by summer 2015, with regular progress reviews taking place to ensure Flood Re can proceed. ”
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