Item 4 is evidence taking on the financial memorandum to the Flood Risk Management (Scotland) Bill. The committee agreed to carry out level 3 scrutiny of the memorandum, which means that as well as seeking written evidence, we will take oral evidence from affected organisations and the Scottish Government bill team.
Welcome to the committee, gentlemen. I will start with a general question to all the witnesses before moving on to one that relates specifically to local government. You will have seen the supplementary information that we received from the Minister for Environment in a letter dated 7 November. Are you happy that the margin of uncertainty that it sets out is broadly accurate? How will you build the implications of the significant degree of uncertainty that exists into your financial planning framework?
The uncertainty to which you refer is the common and prevailing theme in all the submissions that we have read. That presents us with a difficulty, as certainty will not emerge until the preliminary round of flood risk assessments has been undertaken. In its written submission, Angus Council made a proposal for how to deal with the revenue implications of the bill in the financial settlement, given that the implications will not be known with certainty until we are some way through the process.
We are happy with the position that the Scottish Government has set out in the latest information that it has provided. The key element will be the result of the flood risk planning preliminary studies. When we have the information from those, we will have a much better understanding of the way forward. The deadline for completion of the studies is the end of the comprehensive spending review, but we will learn as we go and will be in constant consultation with not just Government but local authorities, which will play a key role in determining what the result looks like.
Scottish Water is happy that the approach taken in getting the range of costs has been sensible. We have included in our submission the assumptions that we made. The question is how those are built into future funding. The committee is aware that we are funded directly through customer charges. We are currently submitting the business plan for our next regulatory period, which covers 2010 to 2014. Usually, we are given capital expenditure funding for specific projects, but the fact that the initial assessment is still to be gone through means that we cannot put down funding against specific projects. We intend to submit our estimates on the basis that we will draw down funding based on the results of the flood risk assessments. That is the only way of doing it that we can think of without having further detail.
North Ayrshire Council is obviously pleased with the minister's supplementary evidence, because it gives us a certain amount of confidence about the funding arrangements. However, I draw the committee's attention to paragraph 327 of the financial memorandum, which states:
SEPA was particularly happy to see the two different scenarios that the Government has developed to show the level of uncertainty about the outcomes of the preliminary flood risk assessments and the range of activities that may be associated with those. Will we discover after the preliminary assessment that the flood risk in Scotland is pretty much what we think it is—the assessed risk from coastal and river flooding that is on our flood maps—or will further investigation demonstrate a greater risk from pluvial flooding, groundwater flooding or a combination of types of flooding in urban areas? The scenarios cover a range of outcomes, which gives us confidence that there is a bit of latitude depending on the result of the assessments.
I will focus predominantly on questions on local government, but the rest of the witnesses should not think that they will get off the hook, because my colleague Derek Brownlee is worse than I am.
It is difficult to state with any certainty whether it is sufficient, given the uncertainty that will exist until the preliminary assessments are conducted. I understand that the scenarios that have been mentioned were developed to try to cover a spectrum of possible outcomes. The minister himself makes the point that to some extent the costs will not be known until the process has been worked through.
I know exactly what you mean about Angus.
We recognise that concern. In our written answer to question 4, we said that the second scenario, which we investigated in great detail, would allow us to look at more than just the metropolitan areas—that is the term that Jeff Green used—and at other urban areas. We identified a great list of such areas. I concur with Jeff Green's concerns.
In our experience, one problem is achieving the reduction in risk that the public expect from the Parliament and local authorities. Traditionally, we have tried to reduce the risk to properties—primarily to buildings themselves—and worried later about gardens and suchlike, whereas the public have the high expectation that if there is any water round about their homes, that should be treated as flooding and local authorities should do something about it.
Several local authorities have reported to us that they feel that they have insufficient funds to implement the bill not just in the long term, but in the immediate phase. What discussions has local government had with the Scottish Government about the variations in the required funding, particularly for the immediate phase? Is that built into the local government settlement? Do you expect additional funding up to 2011?
We expect additional funding. Our finance people do not think that the funding is built into the current local government settlement. I am a member of the Society of Chief Officers of Transportation in Scotland's sub-group on flooding. All of us expect additional funding from the Scottish Government to meet the costs.
I endorse Mr Hopewell's comments. The grant-aided expenditure settlement does not address the bill's costs, which I understand are identified as being additional and are not currently met through the settlement.
I will stick with expectations. Both authorities were right to mention capital expenditure, which is expected to increase and to be available, although you expressed some dubiety about who will ultimately be responsible for it. Where will the capital come from and when will it be available?
The present scenario—the status quo under the legislation currently in force—is that support grants are available from central Government. Such grants are triggered if a flood prevention order—an FPO—is confirmed. A number of authorities have flood prevention schemes for which the capital works have gone beyond that stage, and that is reflected in those authorities' block settlements within the current settlement period, which goes up to 2011. However, some authorities, such as Moray Council and Angus Council, are developing schemes that do not yet benefit from having confirmation of a flood prevention order. It remains unclear how the costs of projects or schemes that secure consent within this settlement period will be met under the current legislation. It is even less clear, to me at least, how such cases will be dealt with after the implementation of the new act—in the new era, if you like. Local authorities are nervous that if the capital costs of possible future schemes have to be met from existing resources, it will put huge demands on them, especially the smaller ones. Those demands will have to be met alongside authorities' other financial commitments.
You are going through a strategic planning exercise, so would it be fair to say that you are identifying new risks? You expect not only a capital budget but an increasing capital budget, because of those new risks.
We are moving from an era of reaction to flooding issues to an era of proaction. In addition, our wider remit covers not only non-agricultural land, as before, but all land, and it covers fluvial flooding, pluvial flooding, coastal inundation and climate change. Given that a proactive approach will be taken to all those issues, it is almost inevitable that measures will be identified, through the flood risk management process, that have not been identified before. A high proportion of those measures, unidentified as yet, will be capital intensive.
I totally agree with Mr Green. Many proactive local authorities have put forward not only large capital flood prevention schemes but other schemes for which a need was seen perhaps three, four, five or even 10 years down the line. Such information, together with estimates, has been given to Scottish Government officials. The Garnock valley scheme, one of the latter types of scheme, seems to have become a bit lost. We hope to make progress with it next year, starting work on planning, but until the new legislation comes in there will be a hiatus before we know exactly how far we can go with it.
The European floods directive, the requirements of which are transposed into the new bill, will change the way in which we consider flood risk in Scotland. Not only will we consider where the water goes and what level it goes to, but we will map the depth, velocity and flow paths of the water. We will also consider the impact of flooding on cultural heritage, human health, the environment and economic activity. Those aspects will add to the cost of putting together flood risk management plans. The elements in them that must be reported on are much more extensive than we have a handle on at present.
Local authorities have been around for a long time. How big is the knowledge gap or, to put it the other way round, how complete is our knowledge? What are the knowns and unknowns with regard to the projects that must be completed? Are local authorities up to date with what they must do?
Probably one of the better examples in that regard comes from when the Flood Prevention and Land Drainage (Scotland) Act 1997 came into being. We did our first report, for which we engaged a consultant. We got information from local officers and other people that we did not have a problem on Arran, so we concentrated on reporting on the mainland. That was fine until a year later, when there was a deluge in Arran and many areas were flooded. When we spoke to people on the ground, they told us that the area had a history of flooding going back 100 years. We asked why we did not know about that and the answer was that people on the island dealt with the problem themselves.
To back that up, I think that it is clear that we live in what is a rapidly changing scenario. Our data on river flows and climate change variables show that our rivers' winter maximum flow is between 60 and 80 per cent higher than it was in the 1960s. Year on year, there are massive increases in the number of severe weather warnings and severe flood warnings that SEPA puts out. Traditionally, we have had a good handle on river and valley flooding, and latterly and increasingly we have a good handle on coastal flooding, but we are now looking at the more complex issues that are hitting our urban areas. I accept that it is not just in the big metropolitan areas that that is happening. Urban areas are being further hit by the fact that one of the changes involves an increase in short-duration, high-intensity rainfall events, which easily and quickly make a real impact on such areas.
The local authority environment was different prior to 1996. In those days, regional councils' expertise in water engineering, if I can call it that, was vested mainly in people who dealt with water as distinct from engineering staff who dealt with other infrastructure items. Following local government reorganisation, water services became something else, which evolved into Scottish Water. To generalise, which it is always dangerous to do, the expertise in the water services field moved away to be with what is now Scottish Water. In the interim, local authorities have re-established some expertise through need, but the resource implications of the Flood Risk Management (Scotland) Bill are significant not only in financial terms but in terms of having a distribution of staff with the necessary expertise, skills and background. In its written evidence, SEPA makes the point that there is an issue in Scotland around sourcing staff in the relevant organisations, many of which are represented at this meeting, to address the challenges that the bill will present us with.
It strikes me that there is an immediate short-term problem. If we battle with nature, it tends to win. Floods must be dealt with immediately, but the solutions are not short term but long term. I suspect that the issue is capital expenditure. Where are people with that battle? How much more is there to do?
We have a number of schemes. I have written information on that with me that might help the committee in due course. For the schemes in Angus that we have in mind, we attempted to quantify the implications of the new bill's proposals in revenue cost terms. That information might assist the committee. I could leave it with the clerk, if that is in order, convener.
That would indeed be helpful.
Scottish Water believes that this will be an on-going area of investment. As Chris Spray has pointed out, things are changing rapidly. Although we do our best to design systems that work in future, we are always going to find that things change and move on.
That is what I meant by nature fighting back just when you think that you have won.
The bill as drafted provides a framework that will allow us to plan 30 to 50 years ahead. Under European requirements, we report on a six-year cycle, which means that every six years we have to put together a national flood risk plan, which indicate our priorities for Scotland, and local flood risk management plans, which allow those priorities to be implemented at a local level. Because we are not sure what our priorities will be in 20 years' time, we have to keep working along that path and consider the longer term instead of looking for the quick fix.
What proportion of local authority flood prevention schemes have been funded and have reached such a state of readiness that the flood prevention order that Mr Green referred to can be made?
Scottish Government officials will have that information; I can speak only about what is happening in North Ayrshire. We have constructed coastal flood prevention schemes at Largs and Saltcoats and are intending to take forward the upper Garnock valley scheme, which will serve Kilbirnie, Glengarnock and Dalry. We hope that, after that, we will be able to take forward the scheme at Kilwinning in two phases.
It is probably more appropriate to address this question to ministers, but the written evidence that we have received makes it abundantly clear that councils do not have the capital resources to deliver the schemes that they have already proposed. In that context, many of my constituents might well be filled with dread at the prospect of SEPA taking on 40 additional staff at a cost of £9.5 million, just to tell them something that they already know. That is an extraordinary number of additional staff, particularly given that it is for the conservative scenario where the result of the assessment tells people that the existing situation is "already well understood". Surely the money would be better spent by SEPA developing some of the defences that councils desperately want to deliver at present.
I will make a general comment on that—
It is not personal, Mr Spray.
That is perfectly all right. I take the point. It is about spending money to prioritise where best to spend money in future. Some individual schemes dwarf those numbers. For example, the Elgin scheme that was mentioned in one of the submissions is running at something near £100 million—for one flood defence scheme. We are talking long term and trying to build, bit by bit, a process by which to get our best information to where it will be most useful in terms of investing significant amounts of money. I do not disagree with you on that.
There are plenty of demands on SEPA's revenue and capital. How easy—or difficult—is it for you to prioritise?
It is difficult to understand the flood risk across Scotland and to get a picture of where our national priorities will be. We need to understand what the current and future flood risk is likely to be in order to prioritise things. First, we need good scientific and mapped data. The European directive requirements in the bill tell us that we have to produce detailed maps to show the risk in areas where we think we have a significant flood risk. Having done that, we then have to think about how to deal with the risk. It is a bit like building a house: before you start to build, you have to ensure that the plans and permissions are in place and that the architects have had a right good look at things. We have to ensure that our priorities are in place and that we understand current and future risks.
In the minister's supplementary evidence, the number of additional staff is projected at between 40 and 55. Will they be permanent SEPA staff?
Yes.
How does the £9.5 million staffing costs for the 40 additional staff or the £14.18 million for the 55 additional staff relate to the on-going costs that are set out in the financial memorandum? The costs on SEPA are shown as reducing dramatically to £3.34 million.
We took a look at what SEPA's tasks would be. I refer not only to the project tasks of delivering a flood risk management plan, but our on-going tasks. The flood risk management plans need to be reviewed every six years and cycled again. Local authorities have to put together flood risk management plans for areas where there are significant flood risks. SEPA has to oversee that process to ensure that it is happening and that authorities have all the tools, equipment and data to give a sound basis for their flood risk management decisions.
How many of the people that you have mentioned are experienced flood practitioners? I believe that they are a scarce commodity. Does that mean that they will command higher salaries?
I am not sure about commanding higher salaries, but they are a scarce commodity, as you rightly point out. We highlighted in our earlier evidence that we need to work with—and we are already talking to—the universities at Stirling and Dundee to get an innovative programme for training hydrologists. A lot of them are hydrological mappers, if you like, and they need a basic understanding of hydrology on to which can be put mapping, management, and geographical information systems skills. It is a challenge and we are already talking to the Scottish Government and the universities about how we can meet it.
I have one final point. Scottish Borders Council's submission is clear that there is a much greater expectation that it will deliver more flood prevention measures, and it is concerned that there is no clarity with regard to future funding to deliver the schemes that it already wants to deliver. We will have 40-odd well qualified people telling someone that their property is about to flood, that their property is flooding, and then why their property flooded in the first place, but no work will have been done on prevention. I suspect that SEPA will not say that that is not the best use of resources.
Who would like to deal with that?
That highlights the difference between the flood risk management plans that are at SEPA's level for identifying the areas that are at risk of flooding, and the local flood risk management plans that will mainly lie with the local authorities or groups of local authorities, to identify areas that are at a higher risk and implement measures to reduce that risk. I was going to say "eliminate that risk", but we do not eliminate flood risk.
The onus has to be on understanding the problem. We cannot promulgate efficient and cost-effective solutions unless we properly understand the problem. To that extent, I agree with SEPA about the creation of local flood management plans being subsequent to the creation of flood management plans.
I agree with Jeff Green. The key thing is to understand flood risks and the effectiveness of the necessary measures. The issue of delivery is one for local authorities, which must weigh up their own priorities.
Earlier, you mentioned staffing issues. Given that there is a shortage of flood practitioners, might we end up with a situation in which local authorities and SEPA are competing for the same graduates?
Not all the new staff will be flood practitioners. They will be involved with managing flood risk, but some of them will be catchment flood management planning people, whose job is to engage with local authorities, set up meetings and allow things to happen. Those people are not flood engineers.
That is exactly my point. They are there to set up meetings about flood risk. However, if the local authorities employ flood practitioners who have local knowledge that has been gained from time on the ground and discussions with experienced people such as Mr Hopewell, surely it will be possible to develop local flood plans more quickly and efficiently. I would be interested to hear what the representative local authorities feel about everything being centralised in SEPA.
We have discussed that issue. We are quite happy for SEPA to carry out a function at a level that is appropriate for it. In our submission to the consultation on the bill, we expressed reservations about SEPA being named as the single competent authority and said that local authorities should also be named as competent authorities—the directive does not require there to be only one. To my mind, that issue has been resolved, and we are now happy with the way in which the matter has been set out. SEPA will do work at a certain level, using whatever resources are required, and then local authorities will step in with their local flood risk management plans and expertise.
There is certainly a role for a national—although that word is not in the legislation—flood risk management plan, which is SEPA's role, and there is also a role for local flood risk management plans, which would fall within the local authorities' domain. The devil is in the detail, however, and none of us is clear about how much detail SEPA's flood risk management plan will go into at a local level, and how much work will need to be done at that level by the local authorities. We have expressed concerns about the fact that, if the national plan is too detailed, it will be too prescriptive to allow local solutions to be developed. On the other hand, if the national plan is too broad, it will not give much guidance in relation to the production of the local management plans. A lot of work needs to be done to get the right balance between what is done at the national level and what is done at the local level.
Mr Spray, I noticed that you were shaking your head at one point.
I will let my colleague talk about that point. Before I do, however, I would like to respond to Mr Whitton's point about us and the local authorities chasing the same resource. He is absolutely right. We have had discussions with COSLA—and both we and COSLA have had discussions with the Scottish Government—about where best to site that resource. If it is best that SEPA holds a central hydrological resource, so be it, although that would not be my wish. We realise that there is nothing to be gained by everyone chasing a limited resource of hydrological specialists. The point about local expertise is also important.
On the relationship between the national plan and the local plans, SEPA will have a role as a national co-ordinator and facilitator. It needs to produce a plan that shows the national policy framework and gives an overview of flood risk management priorities. However, SEPA will not do that on its own; it will agree on priorities in collaboration with local authorities and the Government. The national plan, which will be sent to the European Commission, will be made up of all of the elements that are in the local plans.
Is that really a recipe for co-ordination? SEPA, Scottish Water and local authorities all face the same problem but they are all operating in different ways. Is the situation co-ordination or competition? How can you organise the situation better?
There must be co-ordination and partnership working, not competition. As we have worked on the bill with the Scottish Government, that has become more and more apparent. The flooding bill advisory group, in particular, has been a good forum for that debate.
The bill sets out a framework and, as everyone has said, is aimed at ensuring that there is partnership working and co-operation. If we are not going down the route of having one organisation that deals with flooding, we will have to find a way of working together efficiently and effectively to deliver the outcomes.
Last week, in Ayr, we heard some interesting points about infrastructure and the economy. Witnesses spoke about the importance of implementing flood risk management plans so that floods do not adversely affect the local economy. Concerns were raised about the fact that projects need to be commenced far in advance of when they might be needed because of the significant time between identifying projects and flood prevention measures being in place. What are the cost implications of such lengthy lead times?
Flooding works have a significant gestation period: the time between identifying need and there being tangible works on the ground can be significant. The fact that flood prevention orders will grant deemed planning consent will avoid a two-system approach for promoting schemes. At present, schemes require flood prevention orders and all that is associated with them. They also require planning consent, which replicates some of the flood prevention order process. The granting of an order and the gaining of planning consent tend to be sequential, which accounts for some of the gestation period. I hope that through better co-ordination and co-operation, and by bringing together those processes under the new flood prevention order requirements, delivery might be accelerated. Time will tell.
Local flood risk management plans must start at the same time as flood risk management plans, although local flood risk management plans will not be driven by flood risk management plans until a couple of years down the line. However, I do not see any reason why local flood risk management plans cannot start based on available knowledge. SEPA will produce the Scotland-wide, all-encompassing plans, but many local authorities have similar knowledge to SEPA. Most of our studies and assessments have been made available to SEPA for incorporation into the next round of flood risk maps. Both plans must proceed at the same time.
There will not be duplication. Knowledge of flood risk lies with local authorities. They know the history of local flooding and have done mapping and modelling work. That applies especially in the Glasgow area and in some other metropolitan areas. It is a matter of gathering that information and ensuring that we are not duplicating effort and doing something that has already been done. The floods directive is clear that the preliminary flood risk assessment process should be carried out using readily available or easily derivable information.
The panel will be aware that the financial settlement is very tight. If there is to be a shift in funding, cuts will be required in some areas to fund other areas. Does anyone believe that there is scope for a major reduction in spend on flood prevention in order to fund tax cuts?
I think that the panel's answer is no.
That was a short, sharp answer. Derek Brownlee has the final questions.
I will start by returning to the allocation of responsibilities between SEPA, Scottish Water and local authorities. There is an element of flexibility under the floods directive, and the bill adopts a direction of travel that is not necessarily the only one on the table. Speaking for your respective organisations, are you aware of alternative scenarios being costed? For example, have the cost implications of a major shift of responsibility from SEPA to local authorities been considered, either by local authorities or by SEPA? Has such a change been thought through, to your knowledge?
I am not aware of that. A very effective flooding bill advisory group has been dealing with matters. I think that the Government has employed an independent consultant to study what we have done. The Government might be in a better position to comment on whether any completely different models have been assessed in detail.
The question might be more appropriately directed to ministers, but it is important, given the concern about the cost of the bill and assessing whether the proposals are the most cost-effective way to implement the responsibilities.
We have been directed by the Scottish Government to present to it the costs that are directly attributable to the bill. In our first pass over the legislation, back in the early summer and before we took our estimate to the Government, we were thinking about information and gaps in skill bases. We thought that SEPA would have to develop a skills base and monitoring network to understand flooding better in the areas where we do not have monitoring stations. However, those costs have been stripped out, because they are not directly attributable to the bill. We are being carefully guided by the Government, and the financial memorandum is based on our costs that are directly attributable to the bill.
So whether we assume that the lower or higher range of cost estimates in the financial memorandum—or anything in between—is accurate, your view is that the costs are directly attributable to the implementation of the directive and do not include additional costs that the Scottish Government is adding during transposition.
The only rider to that is the reservoir costs, because the opportunity is being taken in the bill to integrate, upgrade and update them. That is not a specific aspect of the European directive, although it plays well into it because, as we saw recently with some reservoirs that were in danger of overtopping, there is an element of flood risk. However, that is the only addition.
That does not sound like a particularly significant part of the costs. Is it possible to quantify it?
We estimate the cost as five staff, based on what we have learned from the Environment Agency—it has taken the reservoir audit role from local authorities south of the border—our recent experience with the reservoir in Renfrewshire and where the gaps are. We estimated the cost specifically for ourselves; the Government has figures for others.
We highlighted in our submission that we assessed and put forward other costs—related to the pit review and requirements to upgrade systems—in our business plan, but they are not directly related to the flooding legislation.
The financial memorandum estimates average costs of £5,000 per authority, which, given the number of authorities, leads us to the figure of £150,000 or thereabouts for enforcing the Reservoirs Act 1975. That is a realistic estimate of the enforcement duties that currently are imposed on local authorities that will transfer across to SEPA. The costs identified in the memorandum are relatively modest; the actual sums will depend on the number of reservoirs that local authorities have in their area.
Two areas are not properly addressed in the financial memorandum: coastal flooding and the surface water sewer network. The memorandum covers the cost of work that may have to be done to install new systems to reduce flood risk, but there is already an extensive and often unrecorded surface water sewer network, especially in towns and other urban areas, while coastal defences throughout the country were built in Victorian times and are often in poor condition. Councils incur substantial capital costs in maintaining even adequate flood defences, and most councils cannot consider renewing their coastal defences. Those two areas have perhaps been overlooked.
The Victorians taught us a great lesson about looking to the future, which we seem to have forgotten.
It is not inconceivable that SEPA and Scottish Water will be given statutory duties but no funding to fulfil them. If central Government does not meet the costs in full—whatever they are—what action will your organisations take to balance the books?
In relation to the current spending round, we have to deliver on our duties by December 2011. We are content that we can do that within our current allocation, although we will have to consider our priorities and look to find as many efficiencies as possible in relation to our existing duties under the water framework directive, which are similar both in timing and in stakeholder engagement, such as our work with councils on river basin planning. We will look to gain more efficiencies from that.
In constructing Scottish Water's costs in relation to the bill, we assumed that we will be funded by the normal route—in other words, we will reclaim the money through customer charges—and we will put that in our draft business plan. The way in which we spend customers' money is set for us by the minister and our regulators, so we expect to receive targets and ministerial direction. If there is a statutory requirement on Scottish Water to do something, we can recover the cost through our charges. Those charges are set by the Water Industry Commission for Scotland, which is also involved in the process.
My final question is for all the witnesses. We heard about the range of possible costs. The bill requires ministers to report annually on the implementation of the directive. Is there any reason why your organisations—I ask the local authority representatives to speak for local authorities in general, if they can—could not report annually on the costs that your organisations bear as a result of the legislation?
There is no reason why we could not do that. Indeed, our written evidence proposes that that avenue could be taken in auditing the demonstrable costs that arise as a consequence of the bill. We would need to make provision at the beginning of the financial year so that our data recording reflected that, but that could be done.
I do not foresee any problems with that. We will try to make as many efficiencies as possible by melding things into our existing systems, but there is no reason why we could not do what you suggest.
As we have reached the end of our questions, I thank all our witnesses—Jeff Green, Robert Hopewell, Jim Conlin, Chris Spray and David Faichney—for their controlled flow of information and their reservoir of experience. We all look forward to future developments.
Meeting continued in private until 17:23.
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