Magazine article Public Finance

Storm Warning

Magazine article Public Finance

Storm Warning

Article excerpt

A year ago, parts of Britain suffered their worst floods for centuries. Today, more than 5,000 families have still not returned to their homes and more than 1,000 are living in caravans. The local authorities affected had to face major challenges, both operational and financial. But what are the long-term financial implications and how should local authorities manage those risks?

The Audit Commission's study, Staying afloat, published last December, looked at the issues around financial planning following the floods in June and July 2007. The report focused on the costs to local authorities, but the impact on communities was much wider than damaged homes, roads and public buildings. Vulnerable and deprived groups tended to be hardest hit, as many did not have any insurance or savings to pay for replacing ruined items.

Other consequences included:

* health issues, with some areas reporting higher incidences of depression as a result of the floods

* lost days of schooling

* some elderly people who had to be moved into residential care have been unable to live independently since

* many people lost a lifetime of treasured possessions

* some businesses have not recovered * staff time and funds had to be diverted into emergency management and restoration

The floods had a devastating impact on people, property and services, but it could have been even worse. Crucially, they happened just before the school holidays, which limited their impact on education. As it was summer, people who were stranded in their homes without power, or in their vehicles, were in less danger from hypothermia or exposure. After the floods had subsided, properties were quicker to dry out; and living in caravans in summer was perhaps a bit more bearable than in the depths of winter.

The costs associated with the flooding were significant for a small number of authorities. The proportion of the total costs that each authority had to fund from its own resources varied greatly, depending on its own insurance arrangements, the types of assets damaged and decisions made by different government departments.

Government funding was generous, but the commission found that the lack of predictability and consistency in who received money and why, was unhelpful to local public bodies planning financially for the next emergency.

One year on, it is still not clear who will pay for some of the damage. Claims from some local authorities might not be fully met. The hardest-hit areas are still getting money from central government but the total allocation for each area remains uncertain. In January 2008, the government announced further Flood Recovery Grant funding. The cash was linked to the numbers of people not yet back in their homes, with a minimum cut-off number and bandings above that. But it is not known whether there will be any further funding on this basis. At the same time, £30m is now available from the European Union, but the formula for distribution to individual councils has yet to be decided.

There is also uncertainty in the public sector insurance market for areas at risk of further flooding. Some authorities affected by last year's flooding are having to pay a lot more money for less comprehensive cover, and some housing associations are reporting serious difficulties in obtaining cost-effective insurance. Yet others report renewing insurance policies that are virtually unchanged. …

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