The UK's flood defences are paying the price after the government department responsible overspent its budget. As further spending cuts seem likely, Katy Dowell reports on how the problems emerged.
When the Department of Food, Environment and Rural Affairs (Defra) was forced to re-shuffle its budget at the beginning of the 2006 financial year its flood defence spending took a battering.
Despite calls for sustained investment in the country's flood defences, Defra, after finding itself £200m over budget this year, has been forced to slash £15m from the Environment Agency's (EA) spending in this area.
Worryingly, it is also feared that further cuts will be made in 2007. Defra has said that the 2007/2008 budget will be "squeezed", although what impact this will have on the EA is still unclear. An announcement is expected shortly.
News of the spending cuts emerged last summer, but it was not until November that their size became apparent.
It has emerged that while Defra knew about the cuts as early as October 2005 it did not pass on this information to the EA until July 2006.
Some are convinced that earlier notification of the spending cuts would have limited their impact.
When Defra's permanent secretary, Helen Ghosh, was summoned to appear before a government select committee last month she was forced to explain why the department had been slow to tell its agencies that spending would be slashed.
She also faced heavy questioning about why the department had overspent so dramatically.
Ghosh admitted that the department was fully aware that spending would be "tight" in January 2006, when the 2006/7 budget was set. But it was not until March or April that its resource requirements became clear. The financial impact of protecting the UK from avian influenza also became apparent.
"[Then] we began to realise that we could not continue to budget on the basis that we were and we put together proposals for ministers to look at cutting our coat according to our cloth," Ghosh told the committee.
The insurance industry is highly critical that flood defence spending has been a victim of Defra's budgeting problem. It has warned of the damaging consequences of the cuts, saying that many homes could become uninsurable.
The UK has yet to experience the full force of a major storm. Until now it has had "incidents" such as Boscastle and the Carlisle floods, which attracted much press attention but hardly brought the insurance industry to its knees. Insurers are fearful that when a major storm hits, the UK will be ill prepared.
The standard of coastal and inland flood defences will be a major factor in determining how much damage is caused.
Flood defence spending, insurers argue, needs to be increased not cut.
Prior to 2006, Defra had enjoyed the luxury of underspending as a department, and had carried forward its overflowing budget. Yet, Ghosh explained "the spending position has tightened significantly in recent years" and the Treasury had put a stop to the custom of carrying unspent budget over to the next financial year.
Defra had £160m left in its pot of cash at the end of 2005/2006, of which it intended to carry forward £60m into the 2006/2007 budget. This sum would have been part cash, with the remainder coming "from other sources", Ghosh said. The cap on the draw-down, says Defra, was enforced by the Treasury.
It emerged that the department was told as early as spring 2005 that Defra would not be allowed to carry forward any substantial amount of money into the new financial year. But it was not until autumn 2005 that Defra met with the Treasury to discuss the implications, in real terms, for the department and its agencies.
The committee suggested that the budget problems had developed into a "crisis" and that Defra had been slow to react to the changing accounting rules and mounting financial pressure.
Ghosh denied this, saying that the department had not acted slowly: "Of course we hoped that we would be able to live within our budget. [But] I would defend the department strongly against the idea that it took us a long time to realise [the problem]."
Communities around the country are already feeling the pinch of the spending cuts. A major catastrophe would make it a public issue, yet the ABI wants to avoid that altogether by persuading government to dramatically increase spending on climate change issues.
The Liberal Democrats say the spending was cut because of a "foolish economy". To what extent that is true is questionable. What is true is that Defra knew well in advance of notifying the EA that it would be forced to slash budgets. And that earlier notification may well have limited the impact of those cuts. IT
