Forty-Fifth Report - Managing flood risk

Scarce local authority resources and low levels of private sector investment are barriers to the effective management of flood risks, especially given the impact of Covid-19. Lead local flood authorities (unitary authorities or county councils) are responsible for managing local flood risks. Their funding for this is not ring- fenced and there are concerns over the level of revenue funding available to local authorities. The Department understands that, taken as a whole, local authorities spend more on managing flood risks than they are allocated through the Ministry of Housing, Communities and Local Government’s (MHCLG) local government funding formula. However, it recognises that it needs a better understanding of why spending varies so much across individual authorities and whether the formula for allocating funding to each local authority accurately reflects its level of flood risk. The partnership funding model has been successful in attracting additional investment to flood defence projects, but the level of private sector contributions has fallen to just 7% between April 2015 and March 2021, down from 25% between April 2011 and March 2015. While the Department and Agency want to see this percentage increase, the impact of Covid-19 on contributions is uncertain. Recommendation: The Department and the Agency should identify areas where there is likely to be a shortfall in local authority resources and private sector contributions to ensure the effective management of flood risk in local areas. They should report to us on their assessment by July 2021.

In 2014 the NAO report on strategic flood management found there was a profusion of plans that often duplicate across geographical or administrative areas. Defra and the Agency have not followed the NAO recommendation to review their strategies and plans with a view to rationalise them to reduce the burden on communities and to promote public engagement. 6 Managing food risk Recommendation: Defra should write to the Committee within 6 months with an update on the opportunities to streamline local planning and with a timeline for implementation of any reforms.

Short-term funding cycles are impacting on the Agency’s ability to manage flood risks effectively. The Agency has a six-year capital funding settlement for investment in flood defences (2021–22 to 2026–27), but only a one-year settlement for revenue funding (2021–22). Revenue funding pays for people and running costs including the on-going maintenance of flood defences. Maintenance costs are increasing due to more extreme weather as a result of climate change, more flood defences being built and as some defences reach the end of their life. Only half of the defences damaged in the 2019–20 winter floods have had their standard of protection restored. Multi- year revenue funding settlements would improve planning in areas such as staffing. The Agency has skills gap in some areas such as engineering that are critical for flood defence, which it says is largely down to the pay difference between the public and private sectors. As a result, the Agency is looking to develop in-house expertise, which requires long-term investment in skills and, in turn, certainty over revenue funding. Recommendation: The Department and the Agency should work with HM Treasury to reduce the adverse impacts of short-term funding cycles. The Government should also undertake a cost benefit assessment of the level of funding needed to maintain flood defences and flood risk management assets both at and above current Environment Agency target condition. The Environment Agency should have a duty to maintain flood defence assets and the Government should commit to maintenance funding in revenue funding settlements for longer-term security.

The current indicators used to monitor national flood risk do not cover important elements such as risks to agricultural land, business premises, and infrastructure. The Agency uses the number of homes ‘better protected’ as the main performance indicator for its capital investment programme. It also uses its National Flood Risk Assessment model to estimate the number of properties at risk of flooding each year, although changes in methodology make comparisons over different years uncertain. The Agency does not measure what is happening nationally to the overall flood risk for agricultural land or infrastructure. In addition to the specific indicators it is developing for the capital investment programme, the Department has also committed to developing a new set of national flood risk indicators by spring 2022. Recommendation: The Department’s new set of national flood risk indicators should incorporate all types of flood risk to ensure they provide a full picture of what is happening to flood risk including for homes, non-residential property, agricultural land, and infrastructure across England and should facilitate the comparison of flood risk across previous years so progress can be clearly assessed.

The Department has not ensured that all regions, deprived areas in particular, get a fair share of the available funding. The Agency uses the level of risk in an area and the readiness of projects to go ahead to decide where to invest in flood defences. The Agency’s own research in 2020 shows that deprived areas are more at risk from flooding, yet the proportion of all homes ‘better protected’ that were in the 20% most deprived areas declined from 29% in 2014 to just 8% in 2019. The Managing food risk 7 Department speculates that this is largely due to viable projects in deprived areas happening early but has not done any analysis to back this up and it remains the case that deprived areas are more at risk. There is also significant variation in the level of flood defence investment per property at risk across regions. The timing and size of projects as well as the availability of match funding also created a variation in investment levels and the Agency recognised it needs to understand more about the pattern of investment and the impact of its decisions on communities. Recommendation: The Department and the Agency should undertake and publish annual analysis of investment levels across regions and deprived areas. This should be followed up by appropriate action to reduce any funding inequality. Annual analysis and reporting should start at the end of the first year of the next investment period (March 2022).

We are not convinced that the Department has yet done enough to address the difficulties those recently flooded have in getting affordable insurance. Some people who have recently been flooded still face difficulties in obtaining affordable insurance. The Department states that the existence of Flood Re should ensure that affordable insurance is available even for those households at high levels of flood risk. However, the Department’s own research, following the floods in Doncaster in November 2019, suggests that some people were still unable to obtain affordable insurance. There also remain obstacles, and a lack of incentives, for households to take up property-level flood resilience measures such as installing flood barriers and doors. Such measures can reduce the damage and recovery time after a flood and could help people to get affordable insurance. There is scope to make flood resilience grants more effective, reform building regulations and introduce Flood Performance Certificates. Recommendation: The Department should write to us by April 2021 setting out the findings of its research into non-take up of insurance and how it is going to ensure remaining obstacles to obtaining affordable insurance are addressed. It should include what it is doing to overcome the obstacles to households implementing property-level flood resilience measures.

Despite the known risks, there are still plans to build houses on flood plains. While government policy is not to build on flood plains unless unavoidable, the Agency’s analysis indicates that there could be a large increase – of up to 50 per cent - in the number of houses built on flood plains over the next 50 years. The Agency is working with MHCLG on reforms to the planning system and is also a statutory consultee on planning applications; it says that in 99% of cases its advice is accepted by the planning authority. However, the Agency does not have responsibility for surface water flooding which sits with the lead local flood authority, the risk of which can be increased with developments in urban areas. There is also a disconnect between the developers who financially benefit from new housing developments and those who face the consequences of it not being sustainable or insurable. Recommendation: Planning policy guidance notes should be strengthened to avoid new builds in areas prone to flooding wherever possible, but in any case, the environment agency should be involved in measures to mitigate the risk. The Department should report to us by July 2021 on the outcome of its discussions to 8 Managing food risk date with MHCLG on reforms to the planning system and how this will mitigate the risks of building on flood plains and other flood risk areas including those at risk from surface water flooding. This should consider approaches to ensure developers guarantee property can be insured and contributes to flood mitigation measures The Department should work with MHCLG to • ensure mandatory reporting on planning decisions approved in flood risk areas – particularly when the Agency disagrees. • ensure mandatory installation of Sustainable Drainage Systems (SuDS) in new builds • consider changes to building regulations to include mandatory flood protection measures in new builds such as raised electrical sockets, fuse boxes and sealed floors Managing food risk 9

On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Environment, Food and Rural Affairs (the Department) and the Environment Agency (the Agency) on managing flood risks.1

Lead local flood authorities (unitary authorities or county councils) manage the risk of surface and ground water flooding, and flooding from ordinary water courses which are not main rivers. The funding local authorities receive for flood risk management is not ring-fenced. The National Audit Office reported concerns about the uncertainty and level of government’s revenue funding for lead local flood authorities.9

The amount of funding local authorities receive for flood risk management is determined by the Ministry of Housing, Communities and Local Government’s (MHCLG) local government funding formula. The Department told us that, taken as a whole, local authorities are spending more on flood risk management than they are allocated through the funding formula. However, it recognised that there is wide variation in funding across individual local authorities and accepted that it needs a much better understanding of what individual local authorities are spending. The Department has committed to work with MHCLG to improve its understanding of the allocation of funding and spending within local authorities on flood risk management. This will include a review of the funding formula to determine whether it is targeting the right areas in the right ways to reflect local flood risk.10

The Government introduced partnership funding in 2011, requiring many flood schemes to be part-funded from sources other than government grant-in-aid. The cost of individual schemes is shared between national and local sources of funding, to allow more schemes to go ahead. The Agency told us that partnership funding had been successful in attracting additional local funding. The Agency estimates that the partnership funding model attracted £530 million of investment during the period April 2015 to March 2021, exceeding its target of £390 million. More than half the schemes the Agency delivered over this period included some partnership funding.11 7 Qq 33–37 8 Qq 34–35, 55 9 Qq 39–40; C&AG’s Report, fig 2, para 3.25 10 Qq 38–39 11 Q 63; C&AG’s Report, para 2.17, 2.19 Managing food risk 11

The EA Strategy highlights the role of Community Interest Companies (CIC) including the East Wash CIC in partnership funding. Following questioning in the hearing, Defra confirmed that parish councils precept income can be used to fund flood and coastal erosion risk management activities.12

Nearly all this partnership funding has been obtained from public sector sources, with only £39 million (7% of the total) being secured from the private sector. This is significantly lower than the 25% of partnership funding secured from the private sector between April 2011 and March 2015.13 The Department wants to see the level of private sector contributions increase and is looking at the types of incentives that might support this. The Agency told us that it is important to build coalitions with the private sector to help them understand it is in their interest to invest in flood defences. However, the Department agreed that Covid-19 makes attracting private sector funding more challenging and uncertain.14 Funding cycles

The government has a record of providing the Agency with long-term capital funding settlements, with two six-year settlements covering 2015–16 to 2020–21 and 2021–22 to 2026–27. However, the Agency only has a revenue funding settlement covering the next financial year (2021–22). Revenue funding covers people and running costs including the on-going maintenance of existing flood defences. The Agency is currently in discussion with the Department over its revenue allocation for 2021–22. While the Department expects there to be a spending review in autumn 2021, it is not clear whether the outcome of that will be a multi-year revenue funding settlement.15

The Agency told us that multi-year revenue funding settlements are preferable and help it to plan in areas such as staffing. The Agency has skills shortages in some specialist areas like engineering that are critical for flood defence. It explained that this is largely due to the disparity between the pay in the public and private sectors and it does not see this situation changing significantly. As a result, one solution it is focused on is developing in- house expertise through apprenticeship schemes and supporting people to get professional qualifications. It said that these are long-term solutions which emphasise the importance of certainty over long-term funding.16

The Agency explained that on-going maintenance costs are increasing for three main reasons. First, as a result of more extreme weather due to climate change, both more extreme flooding and more extreme droughts. Second, some flood defences in England are quite old, having been built in the 1960s and 1970s. They are now coming to the end of their design life. Third, the Agency is building more defences and these will require maintenance.17

The Agency is already seeing the impacts of climate change through the increasing strain on existing flood defences. In March 2020, the government gave the Agency £120 million to repair the defences damaged in the 2019–20 winter floods. At that time, the 12 https://committees.parliament.uk/publications/4520/documents/45720/default/ 13 C&AG’s Report, para 2.19 14 Q 74 15 Q 68–69 16 Q 69, 71–72 17 Q 27, 70 12 Managing food risk Agency identified 610 flood defences that needed work and it expected to complete 80% of these by the end of 2020. During our oral evidence session, the Agency said that only 262 (43%) have had their standard of protection fully restored; 189 (31%) have temporary fixes or contingency plans in place so that they will provide the necessary protection if needed. The Agency has concluded that the remaining 159 (26%) do not need any contingency arrangements.18 In written evidence provided after the session, the Agency provided an update on these figures. The repair programme now consists of 604 projects. Of these, 321 (53%) have had their standard of protection restored by permanent or temporary repairs, 140 (23%) have contingency plans in place and, for the remaining 143 (24%), the Agency does consider there to be a need for contingency plans. The Agency said that it has prioritised the repair of assets that pose the most significant risk to lives and livelihoods.19 National flood risk indicators

The Agency is on track to better protect 300,000 homes as a result of its capital investment programme for 2015–16 to 2020–21. While this a clear and easily understood measure, it does not provide any indication of what has happened to flood risk for non- residential buildings, agricultural land and infrastructure, although the Agency does separately measure the impact of the programme in these areas.20 Also, the measure does not take account of the impact of other homes becoming less well protected over the period due to, for example, through new housing development or the impacts of climate change. When taking these other impacts into account, the Agency estimates that nationally there will be 5% less economic damage from flooding in an average year as a result of the current programme. It also estimates that the next investment programme (2021–22 to 2026–27) will reduce damages by up to 11%. However, it acknowledges that this risk reduction calculation is based on a high-level model and the method of calculation has not been improved over the past six years, and that it is highly sensitive to the input assumptions. It also does not have a comprehensive measure to assess progress against this.21

The Agency also uses its National Flood Risk Assessment (NaFRA) model to estimate the number of properties at risk of flooding each year. Due to changes in methodology over the 2015–16 to 2020–21 period, a direct comparison between years is not reliable. The Agency is due to update NaFRA in 2024 to provide a more sophisticated analysis of overall flood risk.22

When we asked the Agency how it assesses overall national flood risk for non- residential buildings, agricultural land and infrastructure it said that it does not measure this unless it is part of a particular flood scheme. So, for example for agricultural land, the Agency does not know what has happened to the overall level of flood risk over the current investment period 2015–6 to 2020–21.23

The Agency recognised that the way flood risks are often described, using percentages and probabilities of being flooded, are not very meaningful for the public. It described 18 Q 27: C&AG’s Report, para 16 19 Letter dated 27 January from Environment Agency to Committee 20 Q 30; C&AG’s Report, para 2.4–2.5; Letter dated 27 January from Environment Agency to Committee 21 Qq 41–42; C&AG’s Report, para 2.8, 3.16; 22 Q 41; C&AG’s Report, para 2.8 23 Qq 43–44 Managing food risk 13 how it is moving away from this way of describing flood risk. It now focuses on whether a community is at risk and what the community needs to do to prepare for future flood events.24

The Department has committed to developing a new national set of indicators on flood risk by spring 2022. It confirmed that these new indicators will be measurable and will enable the tracking of national flood risk over time.25 24 Q 54 25 Qq 49, 55–56 14 Managing food risk 2 Local investment and resilience Local levels of investment

The Department for Environment, Food and Rural Affairs (the Department) told us that the responsibility for deciding which flood defence schemes to invest in is delegated to the Environment Agency (the Agency). The Agency explained that it decides which schemes will form part of its six-year capital investment programme based on two factors: the extent to which a scheme will reduce the level of flood risk; and the readiness of a scheme to go ahead.26

The Agency published a report in 2020 which showed that people from more deprived areas faced greater flood risk than those living in less deprived areas, although the gap had narrowed in the last 15 years. The report also showed that the proportion of all homes ‘better protected’ as a result of the Agency’s programme that were in the 20% most deprived areas increased from 4% in 2011 to 29% in 2014 but then declined to 8% in 2019. The Department believed that this pattern was due to some large schemes in deprived areas happening early which led to the increase and then decline in investment. The National Audit Office found that the Department had not carried out any analysis to support its explanation of the pattern of investment in deprived areas. The partnership funding model is designed to ensure deprived areas do not miss out on investment as a result of challenges in securing partnership funding. The Department stated that it does not think there is an underlying problem with the model but acknowledged that it needs to do more to understand this.27

We also asked the Agency about the reasons for the wide variation in the level of flood defence investment per property at risk between regions. The Agency explained that the level of flood risk will determine where investment is made. It also said that the timing and size of flood defence schemes creates variation in investment levels. It acknowledged that it needs to understand more about regional investment patterns.28 Access to affordable insurance and property-level flood resilience

We asked the Department why some people faced difficulties in obtaining affordable insurance after being flooded, particularly those in social housing. The Department said that Flood Re, a joint initiative between the insurance industry and the UK Government, was established to ensure affordable flood risk insurance is available, regardless of whether a property has been flooded recently.29 It was established by the Water Act 2014, launched in 2016, and will run until 2039. Written evidence provided by Flood Re stated that more than 300,000 households have been backed by the Flood Re scheme since it was launched, and independent research shows that 98 per cent of households with prior flood claims can now obtain quotes from five or more insurers.30 26 Q 58 27 Qq 58–59; C&AG’s Report, para 2.21–2.22 28 Q 60 29 Q 61 30 Written evidence submitted by Flood Re, MFR0003, 14 January 2021. Managing food risk 15

The Department’s research, following the floods in Doncaster in November 2019, suggests that some people were still unable to obtain affordable insurance despite the existence of Flood Re. The research report made a number of recommendations which the Department is considering.31

Written evidence from the Association of British Insurers (ABI) and Flood Re emphasised the importance of property-level flood resilience measures such as flood barriers and doors. Such measures can reduce the cost of repairs and the recovery time of affected properties. Both the ABI and Flood Re welcomed the government’s commitment to increase property-level flood resilience but felt more could be done to overcome obstacles to the take-up of measures. Their suggestions included: using Flood Performance Certificates to inform householders about their flood risk and how to reduce it; improving the effectiveness of existing government-backed grants for property-level flood resilience measures; offering premium discounts where property-level flood resilience measures have been installed; and reforming building regulations to ensure an appropriate level of flood resilience is built into properties as standard.32 Building houses on flood plains

The Agency told us that the government’s current strategy was not to build houses on flood plains unless there was no alternative and that any developments on flood plains should not increase the risk of flooding. The Agency is a statutory consultee on planning applications that may increase flood risk. It said that its advice is accepted by the planning authority in 99% of cases. It is also working with the Ministry of Housing, Communities and Local Government on planning reforms.33

Written evidence from Flood Re highlighted that the Agency does not have responsibility for surface water flooding and it has concerns about the impacts of developments in dense urban areas where surface water flood risks are high. It also has concerns that there is an inconsistent approach to climate change risk in the planning review process, and that local authorities lack skills and support to take a long-term view. It also highlighted the disconnect between the developers who financially benefit from new housing developments and those who face the consequences of it not being sustainable or insurable in the future. Current planning guidance allows developers to build houses in a flood risk area as long as there is space for flood defence measures to be installed in the future, but with no obligation on the developer to pay for future mitigation measures.34 31 Q 61 32 Written evidence submitted by the Association of British Insurers, MFR0002, 14 January 2021; Written evidence submitted by Flood Re, MFR0003, 14 January 2021. 33 Qq 65–66 34 Written evidence submitted by Flood Re, MFR0003, 14 January 2021. 16 Managing food risk