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Special report: funding for the floods

Next week environment secretary Caroline Spelman is expected to announce a raft of new flood defence schemes across England and Wales that will receive funding. NCE reports on how the Environment Agency is increasing the number of homes protected despite a 15% budget cut.

On top of the flood risks which have been very apparent in the UK in recent years the Environment Agency is also dealing with the risks of climate change in an economic climate that is scaring many.

Environment Agency director of coastal risk management David Rooke tells NCE that there are a number of challenges that must be dealt with in the coming years with climate change being top of the pile.

Challenges

“I think there are a number of challenges and the first one is adapting to and dealing with climate change,” he says.

But given the severe economic circumstances plaguing Europe and the UK at the moment, that is going to be a tough ask.

“I think there are a number of challenges and the first one is adapting to and dealing with climate change”

David Rooke, Environment Agency

The Environment Agency - like most other government departments and agencies - saw its budget cut in chancellor George Osborne’s tough 2010 Comprehensive Spending Review.

It saw £170M cut from flood defence, split out as a 15% cut to capital budgets and a 20% cut to revenue budgets.

But unlike other infrastructure-led agencies such as the Highways Agency there was no softening of the cut in Osborne’s 2011 Autumn Statement.

Yet it has committed to better protecting an additional 145,000 households from flooding in this Spending Review period.

Inconsistency

As Public Accounts Committee chairman Margaret Hodge put it to Rooke, his boss and Agency chief executive Paul Leinster, and Department for the Environment, Food and Rural Affairs permanent secretary Bronwyn Hill in late November, is that not an “inconsistency”?

The committee reported yesterday, and reiterated this concern “There is a big mismatch between what the Agency reckons it needs to maintain current levels of flood protection and the budget being made available,” said Hodge. “The Department sees more funding coming from local sources – including businesses and local authorities. We are sceptical that this will be possible when local authorities and businesses are themselves under financial pressure.”

Leinster and Hill rejected this concern in November, and remain confident that funds will be found. Leinster argued that the 15% cut to capital will be offset by a 15% reduction in the agency’s cost base over that period, through value engineering and by renegotiating contracts with its suppliers (see box).

He added that the 20% revenue cut would not affect front line services such as flood defence spend. “In real terms, for the capital part of the budget, we will maintain that spend through a 15% efficiency,” he said.

Or, as Hodge succinctly phrased it, “by doing more projects more cheaply.”

That, said Leinster, will get the Agency to the 145,000 target and beyond. “In fact, we believe - as we did in the last spending review period, when similarly we had a 145,000 target and delivered more than 180,000 additional properties protected - that we will be able to outperform that,” he said.

Greater efficiency

“That is what we drive towards. We drive for greater efficiency and effectiveness. We are working in partnership with contractors and consultants to deliver that greater number.”

Going forward, more investment still - the Agency believes that over the next 25 years around £20M more a year (the exact figure is being recalculated, see box) will need to spent to maintain defence standards in the face of mounting climate change - will have come in part from other sources.

Cutting the cloth

Environment Agency chief executive Paul Leinster told the Commons Public Accounts Committee in November that “discussions” with the supply chain continue on ways to cut 15% from project costs without cutting projects.

Bundling work is the current favourite.

“We have been having ongoing discussions with those consultants and the contractors to see whether, through bundling different bits of work, making sure that we can get teams of people who have been involved in one scheme, then mobilised immediately on to the next scheme, and use that to drive efficiencies,” said Leinster. “And we are looking at how we can bundle some of the smaller pieces of work that we used to do in-house together so that we can outsource that as well.”

Leinster said cost consultants will also be scrutinising the cost of work to drive down costs.

Frameworks will also be a major factor, said Leinster. “One of the things that we have done in the overall capital programme is to say that a certain amount of it - we have not yet fixed on the figure, but it may be 70% or so - must be procured through our central scheme and our central engineering contractors and consultants. In that way we can lock in that efficiency.”

Leinster is keen for local authorities to also use the frameworks.

“Others will be able to procure in through our procurement [system]. So if a local authority wanted to go ahead with their own scheme they also have access to our [framework] contracts.

“The more that we can get going through our contracts, the greater the efficiency will be.”

One of the clear recommendations that Sir Michael Pitt made in his review of the 2007 floods was that those benefiting from flood defences should contribute, so the Agency is pursuing a partnership funding approach that encourages and provides a way for local communities and the private sector to contribute to new flood defences.

This is already happening, says Rooke. “There are some good examples of these schemes already,” he says. Next week’s announcement will outline a host more.

“We want the outcome of this scheme to be that even more projects are delivered and there is more protection to more communities,” says Rooke.

“We want the outcome of this scheme to be that even more projects are delivered and there is more protection to more communities”

David Rooke

To date the Agency believes communities have funded schemes to the value of £43M - schemes that would traditionally have been funded by the Agency.

“For example, we have seen projects in Sandwich in Kent and Morpeth in Northumberland,” says Rooke.

“These projects have been funded by a mix of investors. In Sandwich the investor is a large pharmaceutical company providing the contribution and in Northumberland it is the city council providing half, and we are providing the other half,” he adds.

There are more. In the Solent, Portsmouth City Council has committed to raising an additional £40M through a community infrastructure levy. Some local authorities, albeit in particular areas, such as Cockermouth, Cumbria, have voted for an additional levy on the council tax.

“Not every local authority will find the money. Some of them will prioritise social care, schools or hospitals or whatever.

Raising money

But in certain places, particularly where the flood risk and the experience of flooding is very high, we are beginning to see local communities and their leaders campaigning to raise money,” Hill told the committee.

Rooke adds that projects that are assessed by the Agency and found to be nationally significant will continue to receive full government funding.

A benefit to cost ratio greater than 5:1 seems likely to be the trigger. Below that, and some kind of partnership funding is likely to be needed.

“Schemes that have a BCR of less than 5:1 really need to go out and attract that extra funding from wherever,” Hill explained to the committee.

Scheme by scheme

“We haven’t got a plan that says we are expecting x% from here and y% from there, because it is done on a scheme-by-scheme basis,” explained Hill.

“Roughly, the government say that they will contribute 20p in the pound on the basis of household benefits in a normal scheme.

“We are trying to incentivise local authorities and private sector companies that would benefit, because of the nature of their property, to say, ‘Can we raise the additional money to add to what the government can afford to pay, to get the scheme to go ahead?’ That is how the fund works.”

 

Future flood spend predictions

Flood defence spending must double to £1bn a year by 2035 to ensure that protection for the one in six homes now at risk of flooding in England is maintained, the Environment Agency said in June 2009 (NCE 25 June 2009).

Spending on asset maintenance and construction must rise from the £570M allocated in 2010/11 to around £1.04bn by 2035, before inflation is taken into account, it said.
This equated to an increase in asset construction and maintenance spending of around £20M per year and a total spend of £20bn over 25 years.
The 2009 spending demands were released to coincide with the publication of revised climate change forecasts, and were to be the Agency’s key weapon as it lobbied for future funding.
The 2010 Spending Review knocked it back in its tracks a bit, and it is now reassessing those demands.
Agency chief executive Paul Leinster told the Commons Public Accounts Committee that the Agency has set up an internal project to review its long-term investment strategy in the light of “efficiency improvements” now being found following the spending review. It will report in six to nine months.

 

 

 

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