Insurance Post

So far, so bad on flood defence spending

Submerged car

As I warned this morning, we need to be very careful when looking at government promises to maintain or increase expenditure against a background of cuts: this caution is proving necessary when it comes to George Osborne's apparently bullish comments about spending on flood defences.

He has so far only dealt with the revenue element of the spending on flood defences through the Department of Environment, Food and Rural Affiars - the green part of the bars on the graph below. He said that this will be protected in cash terms which means an annual spend of £226m in 2015-16, only a whisker above what it was ten years earlier with no allowance for inflation. In other words, a cut in real terms over the decade.

Here it what the main spending review document says:

"Public investment in existing flood protection and new schemes will support the insurance industry to maintain available and affordable flood cover for households. Resource spending will remain at current levels in cash terms. The Government is also committed to providing the necessary capital investment to strengthen flood defences. Further details will be set out in Investing in Britain's Future".

The capital expenditure plans mentioned at the end of that quote will be published tomorrow. So, what sort of figure should we be looking for? A cash standstill would be £344m a year and that would still be below the spending on new schemes in 2010-11. To be delivering any significant boost to the planned spending on new flood defences in future years we should be be looking for a commitment in excess of £400m. That would is what is needed just to get us back near the total spending on flood defences when the government came into office. Anything less than that will enable the insurance industry to say that the Coalition has failed to deliver.

All that said, I still expect to see clauses enabling the creation of Flood Re to appear in the Water Bill when that is published (possibly also tomorrow) and, despite any protestations from the insurance industry and consumer groups, a levy in excess of £10 per policy coming in to fund it.



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