Seventh Report - Resilience to flooding

The Environment Agency is forecasting that it will provide protection for at least 40% fewer properties than planned. When the programme was launched in 2020, the government committed to provide better protection for 336,000 properties by 2027 by investing £5.2 billion in new flood defence projects. The programme got off to a slow start and the Agency has now reduced its forecast for the number of properties that will be better protected by the end of the programme to 200,000. While inflation has been a major factor, the bureaucracy associated with approving projects, particularly for the increased number of small projects, seems to be another significant factor, and this could affect the viability of schemes in smaller rural communities. Defra is yet to complete a formal reset of the programme, and the Committee is concerned that the number of properties protected could turn out to be even fewer than 200,000. The programme’s success relies on local authorities and other risk management authorities, and also on completion of many large projects where the Agency has only medium or low confidence of delivering by 2027. Recommendation 2: a) In the Treasury Minute response to this report, the Agency should include a robust forecast of the number of properties that will be better protected under the current capital programme by 2027, including how many properties in rural communities, taking into account all the risks that have been identified. It should also set out the best and worst case scenarios for these figures. 6 Resilience to fooding b) In the Treasury Minute response, Defra and the Agency should also set out what further changes are under consideration to make it easier to get smaller projects approved.

Defra has not established what the appropriate balance is between building new defences and maintaining existing ones. The Agency is responsible for maintaining its existing assets and has assessed that optimal value for money is achieved when 98% of its high consequence assets are maintained at their required condition. A lack of funding means the Agency has not been able to maintain assets at this level. 203,000 properties are at increased risk because assets are below their required condition, more than the 200,000 better protected through the capital programme. Because of the slow start to the capital programme, the Agency spent £310 million less than planned in the first two years. Neither Defra nor the Agency considered whether to use some of this underspend to meet the shortfall in maintenance funding and instead agreed with HM Treasury to defer it to the remaining four years of the programme. For 2023–24, Defra has provisionally agreed with HM Treasury to transfer £25 million from the capital programme to maintenance. This is only enough to get to 94.5% of assets in target condition, still well below the Agency’s target of 98%. Recommendation 3: For the remaining years of the capital programme, the Agency should set out the value for money of different options for the balance between capital and maintenance budgets, and whether there is a case for transferring funds between the two. This should be reviewed annually. The results of the review should be reported to the Committee as soon as completed and used to inform Defra’s and HM Treasury’s funding decisions.

The risks from surface water flooding are increasing, but Defra is not providing the necessary leadership and support for local authorities on how this will be addressed. Surface water flooding is a growing issue with 3.4 million properties at risk in England. In July 2021, parts of London received a month’s rainfall within a couple of hours and more than 1,500 properties were flooded as a result. An increase in non-permeable surfaces (such as paved driveways) adds to the problem and action to tackle surface water flooding is hampered by a lack of local authority resources. Under Schedule 3 to the Floods and Water Management Act 2010, any construction work that has drainage implications requires approval before it starts. But this has not yet been implemented in England. Defra expects it to be implemented by the end of 2024. Section 3 will require lead flood authorities to oversee the correct design and implementation of sustainable drainage systems (SUDS). This is important in preventing flooding and pollution from mainly new developments. Surface water flooding cannot be predicted as reliably as other types of flooding, but the Agency’s new national flood risk assessment model (NaFRA2) will improve the data on surface water flood risk. The Agency says that there are some local authorities that do excellent work on surface water flooding but there are others that do not have the expertise needed in hydrology or the resources to plan appropriately. Recommendation 4a: Defra should urgently work with DLUHC to identify the skills and resources local authorities will need to implement Schedule 3 and where there are likely to be gaps particularly relating to the proper installation of sustainable drainage systems (SUDS). Resilience to fooding 7 b) The Agency should prioritise its work to provide guidance and training for local authorities on surface water flooding, including sharing examples of good practice.

Defra does not have sufficient understanding of the impact of its capital investment decisions on geographical distribution and we are concerned that smaller communities are losing out. In response to a prior Committee recommendation, Defra undertook by July 2021 to identify areas which are likely to lack enough local authority resources and private sector contributions to manage flood risk, but Defra still has not done so. Defra is insistent that the level of investment in an area is determined by the level of flood risk, but we are concerned that some parts of the country and some location types may be losing out on funding for other reasons, for example because they are less able to secure partnership funding. Defra published guidance for government on rural proofing in 2017 (updated in 2022) to help departments to ensure that rural areas receive fair and equitable policy outcomes. The guidance states that policy makers should be considering the effect of their policy on rural areas and how it might need to be implemented differently. However, the Committee understands that the current method for prioritising projects favours the more population dense urban locations, and that there is a lack of provision for smaller communities of fewer than 100 houses that can nevertheless be devastated by the impact of flooding. Defra highlighted how it believes its £100 million Frequently Flooded Allowance would mitigate some of this, but we consider this a drop in the ocean. Recommendation 5: a) Defra should set out how it intends to get a better understanding of the impact of its investment decisions on geographical distribution and on its progress in reviewing local government funding for flooding. b) Defra should also set out how it is ensuring that it is following its own guidance on rural proofing and that its investment decisions are not disadvantaging smaller communities. c) Defra must complete and publish its significantly overdue work to identify areas which are lik

We are concerned that Flood Re is not providing the protection that was envisaged and that 2039 will likely be too soon to close down the Flood Re scheme given the increasing risk from flooding and slower progress on protecting properties. The Committee has concerns over the number of high-risk households Flood Re protects. It is unclear what number of the 265,000 policies ceded to Flood Re in 2023 were from the top 2% of at risk properties nationally. Flood Re was introduced to allow enough time for properties to become more flood resilient but the Committee doubts the UK is going to be in a sufficiently strong position by 2039 for Flood Re to close. The Agency says Flood Re is working well: in 2022–23, Flood Re provided cover for some 265,000 household property policies, and more than half a million 8 Resilience to fooding households have benefited since the scheme was launched. Prior to Flood Re being introduced, some 9% of policyholders with a prior flood claim could obtain flood insurance quotes from two or more insurers. None could get quotes from five or more. Most can now get over 10 quotes. However, increasing flood risk and slow progress on the capital programme mean Flood Re will be needed beyond 2039. Defra told us that a transition plan was in place but that it needed to be reviewed and undertook to write to the Committee with details of the transition plan and the review. Recommendation 6: Defra should write to the Committee within 12 months setting out how it is working with Flood Re to understand the implications of closing Flood Re in 2039, Defra’s role in the transition plan, and where flood risk must get to in order for this to happen.

We are concerned that new housing continues to be built in areas of high flood risk without adequate mitigations. Although the Agency is a statutory consultee for planning applications, it does not have powers in the planning process to prevent any development on flood plains without mitigation. The Agency told us that 99% of new homes’ planning applications complied with the Agency advice. The problem is that the Agency only examines a proportion of planning applications to build in a flood plain due to its own lack of resources. But over half of Local Planning Authorities said they rarely or never inspected a new development to check compliance with flood risk planning conditions due primarily to a lack of resources. Despite the clear risk, the Committee believes that there is still a lot of development continuing in areas of flood risk without adequate mitigations. It is unforgivable to permit the building of houses in the flood plain without effective mitigation measures. Recommendation 7a: The Agency, working with DLUHC and local planning authorities, should develop plans, including an assessment of any additional resources needed, to strengthen its follow-up process to ensure that the Agency’s planning advice has been fully implemented. b) The Department should write to us within 12 months to inform the Committee of progress on plans to reduce development in areas of flood risk without adequate mitigations. Resilience to fooding 9 1 Defra oversight and leadership

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Environment, Food & Rural Affairs (Defra) and the Environment Agency (the Agency) about their long-term ambition and objectives for flood risk, their understanding and management of flood risk, and their progress on building and maintaining flood defence assets.1

The Agency is responsible for maintaining existing flood defence assets that it owns. Its modelling showed that it is best value for money to have 98% of its high consequence assets at required condition. Timely maintenance is important because if an asset fails it is then more expensive to repair.10 The Agency divides flood defence assets into high, medium and low consequence asset systems depending on the number of properties they work together to protect, with high consequence systems protecting the most properties. Flood risk management assets are assigned a condition grade on a scale from one to five using a visual asset inspection. Most of the Agency’s assets are set a target condition grade of 3 (Fair). ‘Below required condition’ means the asset is in condition 4 or 5, or below its target condition.11

Maintaining assets at the required condition needs funding: in preparing for the 2021 Spending Review, the Agency estimated it needed funding of £235 million a year to keep 98% of its assets at their required condition. Defra decided not to fund the Agency to maintain assets to 98%, instead it set the Agency’s maintenance funding at £201 million which should have allowed it to maintain 94.5% of these assets at required condition.12 The Agency told us it prioritises maintenance of assets based on those which are most risk for the public or those which are more critical.13

The Agency has not been able to reach even the 94.5% level. In summer 2023, only 93.5% of the Agency’s high consequence assets were at the required condition.14 203,000 7 Q 65; C&AG’s Report, para 11 8 Q 65 9 C&AG’s Report, paras 6, 1.8 10 Q 43 11 C&AG’s Report, footnotes 2 & 3 12 Q 51 13 Q 43 14 C&AG’s Report, para 22 Resilience to fooding 11 properties are at increased risk of flooding because of the assets which are below required condition.15 The Agency explained that inflation affects maintenance costs as well as building costs and the recent storms have damaged assets further.16

HM Treasury gives departments some flexibility to switch money between the capital programme and maintenance funding, for example if capital spending is delayed. Because of the slow start to the capital programme, the Agency spent £310 million less than planned in the first two years. Defra and the Agency did not assess the value for money of using part of this underspend to meet the shortfall in its maintenance budget. Instead, they deferred the spending to the last few years of the capital programme when it will need to spend around £1 billion per year.17 Defra has provisionally agreed with HM Treasury to move £25 million from the capital budget into its maintenance budget for 2023–24. The Agency expects this additional funding will allow it to reach its target of 94.5% of assets at required condition, whereas the Agency’s own target was 98%.18 Building in flood risk areas

We have reported previously on the government’s current strategy not to build houses on flood plains unless there was no alternative and that any development on flood plains should not increase the risk of flooding.19 The Agency is a statutory consultee on planning applications that may increase flood risk.20 However, it does not have powers in the planning process to prevent building on flood plains without mitigation.21

The Agency told us it comments on about 110,000 land use planning applications each year, and most of these comments are about flood risk. The Agency told us that 99% of new homes’ planning applications complied with the Agency advice. However, it also told us that in recent years a number of planning applications—some quite large ones— have gone against its advice.22

In July 2021, Defra published a review of policy for development in areas at flood risk. This research found that over half of Local Planning Authorities said they rarely or never inspected a new development to check compliance with flood risk planning conditions. They described a lack of resource as the main barrier to inspections.23 Surface water flooding

The risks from surface water flooding are increasing and will continue to increase due to climate change.24 3.4 million properties are at risk of surface water flooding in England.25 The increase in impermeable surfaces—such as driveways—is adding to the 15 Q 52 16 Q 53 17 Q 2; C&AG’s Report, paras 21, 24 18 Qq 52–53 19 Committee of Public Accounts: Managing food risk. 45th report of Session 2019–21, HC 931, February 2021 Para 29 20 Q 12 21 Q 59 22 Qq 11–12 23 Department for Environment, Food & Rural Affairs, Ministry of Housing Communities & Local Government, Environment Agency, Review of Policy for Development in areas at food risk, July 2021, section 2.6 24 Q 49 25 C&AG’s Report, Figure 1 12 Resilience to fooding problem.26 In July 2021, parts of London received a month’s rainfall within a couple of hours and more than 1,500 properties suffered from surface water flooding as a result.27 The Agency told us how difficult it is to forecast the precise areas where heavy rain will cause surface water flooding and there is frequently not enough warning of surface water flooding to allow communities to react. Around a third of the schemes in the Agency’s capital programme are to help address surface water flooding.28

The Agency told us it needed better surface water modelling and mapping and described how its new national flood risk assessment model (NaFRA2), which it expects to be completed by the end of 2024, will help. It expects NaFRA2 will improve its understanding of surface water flood risk as well as more detail for other types of flooding, for example by giving a prediction of the depth of flooding. NaFRA2 uses a different methodology from the previous assessment model, building up an assessment of risk from local models and will allow more accurate tracking of changes in risk over time.29

The Agency is not the lead risk authority for surface water flooding: this falls under the remit of a number of bodies (such as the Highways Agency) with local authorities having lead responsibility.30 Local authorities’ core budget is not ring-fenced for flooding and we have previously raised concerns over the level of revenue funding available to local authorities.31 The NAO’s survey found that 60% of local authorities did not think they had the staff capabilities to undertake their role effectively and more than half said they did not have the funding to undertake their role effectively.32 The Agency told us that there are some local authorities that do excellent work on surface water flooding but there are others that do not have the expertise needed in hydrology or the resources to plan appropriately. It is working with local authorities to increase their capability by providing training courses and websites with guidance.33

Under Schedule 3 to the Floods and Water Management Act 2010, any construction work that has drainage implications would need approval from the local authority that its drainage met national standards for sustainable drainage before it is connected to the public sewer. This schedule has never been implemented for England. Defra told us it is committed to enacting the schedule, but does not expect this will be until the end of 2024. This additional work will add to each local authorities’ burden.34 This should now become a priority for the development as some new sustainable drainage systems are not being properly designed and installed and need to be better supervised by empowering the lead flood authority to do so. 26 Q 14 27 C&AG’s Report, para 1 28 Q 49 29 Qq 17, 60–61; C&AG’s Report, para 13 30 Q 17 31 Q 24; Committee of Public Accounts: Managing food risk. 45th report of Session 2019–21, HC 931, February 2021, para 2 32 C&AG’s Report, para 2.22 33 Qq 17, 37 34 Qq 55–56; Letter from the Department for Environment, Food and Rural Affairs and the Environment Agency to the Public Accounts Committee, dated 7 December 2023 Resilience to fooding 13 2 Impact The number of properties the programme will protect

When the six-year £5.2 billion capital programme to build new flood defence assets was launched in 2020, the government committed to provide better protection for 336,000 properties by 2027 by investing £5.2 billion in new flood defence projects.35 The programme got off to a slow start and the Agency did not spend £310 million of its funding in the first two years of the programme. Reasons for the slow start include inflation, capacity and Covid, as well as completing projects from the previous programme.36 The Agency initially planned to invest in 2,000 projects but this slow start means it has had to remove 500 of these from the current investment period.37

The Agency’s current forecast is that these 1,500 projects will provide better protection to 200,000 properties by the end of the programme, a reduction of 40% on the original commitment of 336,000. Defra is yet to agree with HM Treasury the formal reset of the programme and there are factors which could reduce the forecast further:38 a) To reach the forecast of 200,000 properties better protected, the Agency will rely on projects for which it has low or medium confidence of delivering.39 b) The Agency told us that its larger projects (those more than £10 million) are harder to deliver: they need larger teams; tend to be more controversial; take longer to get planning consent; or can be subject to more changes in the scheme design. Around half complete more than two years late and a similar proportion cost at least 25% more than expected.40 c) More than 50% of projects in the capital programme are to be delivered by other risk management authorities such as local authorities. The Agency considered these projects are riskier because delivery is less within its direct control.41 d) Due to the deferment of the underspend in the first two years of the programme, and with investment already at record levels, EA will need to invest an average of almost £1 billion for each of the remaining four years of the programme.42 e) More of the schemes in this capital programme are small compared to the previous programme: 1,200 of the 1,500 projects will cost less than £3 million yet these have to go through the same steps as all other projects. The Agency is looking at how it can streamline processes such as business case approvals for smaller schemes.43 35 Q 27 36 Q 19; C&AG’s Report, para 17 37 Q 25; C&AG’s Report, para 2.4–2.5 38 Q 27 39 C&AG’s Report, para 16 40 Qq 33–34 41 C&AG’s Report, para 2.30 42 Q 36; C&AG’s Report, para 21 43 Qq 20, 36 14 Resilience to fooding Funding distribution

The level of investment in an area is determined by the level of flood risk and Defra scores its business cases against factors including number of homes, businesses and infrastructure protected.44 Defra published guidance for government on rural proofing in 2017 (updated in 2022) to help departments to ensure that rural areas receive fair and equitable policy outcomes. Its guidance states that implementation might need to be designed and delivered differently in rural compared to urban areas and it encourages departments to overcome undesirable policy impacts in rural areas.45 Defra told us that, of the £5.2 billion investment, 45% of it will benefit properties in rural communities, which will include some smaller villages and communities. In addition, Defra set aside £100 million of the capital investment for a Frequently Flooded Allowance which targets the communities that are worst affected by frequently flooding. However, we understand that the current method for prioritising projects favours the more population dense urban locations over rural, leaving some rural communities without any protection and there is a lack of provision for smaller communities of fewer than 100 houses that can nevertheless be devastated by the impact of flooding. It was not clear to us that Defra was following its own guidance on rural proofing.46

Some 40% of projects need to find partnership funding to be able to go ahead.47 Partnership funding is an important source of funding, where risk management authorities (such as local authorities) raise funds from the public and private sectors towards a flood defence project. To support this capital programme, Defra has brought in £130 million of partnership funding from the private sector so far. The Agency estimates it needs £2.3 billion partnership funding in total, for the six years 2021–27, on top of the £5.2 billion grant funding. The vast majority of partnership funding comes from public sector contributions.48

Some parts of the country may have lost out on funding from the programme because they were less able to secure partnership funding.49 In February 2021, we recommended Defra and the Agency should identify areas where there is likely to be a shortfall in local authority resources and private sector contributions.50 Defra undertook to do this by July 2021, but has still not done so.51 Defra is using some of the capital programme funding to mitigate the risk that flood schemes do not progress due to difficulties in securing partnership funding.52 Defra told us partnership funding has an important role to play in building flood defence assets despite it being hard work to get money out of the private sector at times.53 44 Q 20 45 Department for Environment, Food & Rural Affairs, Rural proofing, November 2022 ) 46 Qq 4–5,20 47 Q 20 48 Q 22; C&AG’s Report, para 7 49 C&AG’s Report, para 2.9 50 Committee of Public Accounts: Managing food risk. 45th report of Session 2019–21, HC 931, February 2021, para 2 51 C&AG’s Report, para 1.6 52 C&AG’s Report, para 2.10 53 Q 22 Resilience to fooding 15 Flood Re

Flood Re, a joint initiative between the insurance industry and the government, was established to ensure affordable flood risk insurance is available to householders. It was established by the Water Act 2014, launched in 2016, and due to be in place until 2039. In 2022, Government implemented some changes to Flood Re to support improved flood resilience among householders.54

Defra told us that Flood Re is working well: in 2022–23, Flood Re provided cover for 265,000 household property policies and more than 500,000 households have benefitted since it launched. Before Flood Re was introduced, 9% of policyholders with a prior flood claim could get quotes from two or more insurers and none could get quotes from five or more. Most policyholders can now get over 10 quotes.55 The Committee has concerns over the number of high-risk households Flood Re protects. It is unclear what number of the 265,000 policies ceded to Flood Re in 2023 were from the top 2% of at risk properties nationally.56

Flood Re’s existence is due to end in 2039, by which time it was expected that insurance would be affordable to householders given the anticipated reduction in flood risk as a result of improvements to flood resilience. Defra told us it would keep under review what is the right insurance mechanism to have in place, bearing in mind progress with building flood defences and with creating greater resilience.

Flood Re is required to publish a transition plan every five years outlining how they plan to manage the transition. Flood Re published its most recent Transition Plan in July