Severe floods have again pushed the question of environmental protection to the centre of political debate. A disaster for those affected, the floods have arrived just as talks between insurers and the government are on the verge of breakdown. A deal struck in 2000 to enable those living in flood-prone areas to continue to receive insurance expires next year. As yet it shows no signs of renewal. Insurers want guarantees from government that flood protection will be maintained. The government has hinted that the insurers are using the crisis to push for an unfair settlement. About 200,000 homes are at risk. They are the collateral damage of a collision between a government chasing short-term savings and an industry chasing short-term profits.
Flood defence expenditure has been cut by 25% since 2010, while 294 schemes that should have received funding since then have yet to be started. The costs apparently saved in cuts to flood defences are more than outweighed by the costs of repairing damage afterwards. One estimate already puts the costs of flooding at £1bn a year – four times the Environment Agency's budget. The coalition's slash-and-burn austerity measures do nothing to help the economy today – and are shoring up huge problems for the future. Every £1 spent on flood defences has been estimated to save £8 in future.
If government has been recklessly short-sighted, the insurance companies are little better. The five biggest firms account for half the domestic market between them. The largest, Aviva, had revenues of £50bn last year. Floods are expensive for insurers. But these huge corporations are more than big enough to take the cost. Guarantees on government flood defence spending are, for them, little more than a means to protect profits – a public subsidy for their shareholders. Householders in high-risk areas still lose out, with reports of those attempting to renew their insurance in recent months being quoted hugely inflated prices.
The combination of the coalition's mindless commitment to austerity, and the insurance companies' scrabble for profits is producing a deadlock. Breaking it decisively would require two actions by government. The first is an immediate increase in flood defence spending in affected areas, as recommended by the Pitt review five years ago – briefly implemented, and then abandoned, by Cameron's government. The coalition's austerity plans have been a minor disaster, driving the economy back into recession over this year and hampering recovery. Extra expenditure, particularly on crucial infrastructure, is desperately needed. One estimate suggests that £500bn will be required over the next decade to replace creaking infrastructure.
Second, if the Treasury still insists on meeting its self-defeating spending targets, a tax on the insurance companies should be levied to pay for flood defence. And where insurance companies are threatening to remove cover from households, the government should, in return, extend the provision of its own insurance cover.
These can only be comparatively short-term measures. Over the longer term, we need to reconfigure how and where our economy operates. There is a clear housing shortage, most especially in the south-east. But of the record low number of new homes being built, up to 16,000 are still constructed on floodplains annually. The costs of this are not borne by private developers, but by homeowners and then (ultimately) the rest of us. Tighter planning controls over floodplain development, allied to a serious effort to shift economic activity and create jobs in lower-risk areas, are both needed to reduce future costs. Muddling through on private provision will not deliver the shift.