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Environment (Deep End)

Will the floods drown George Osborne’s economic recovery? Probably not, says Julian Morgan in an article for the New Statesman:

“Let us start with GDP and the surprising fact that natural disasters can be good for GDP, at least in months that follow. In the case of the floods, there will need to be a lot of extra spending by households, businesses, insurance companies and the government to clean-up and restore damaged property and infrastructure. Some things will work in the other direction, for instance if a lot of people are unable to work due to the floods, but it will be no big surprise if GDP is pushed up for a while.”

However, Morgan emphasises that this is a temporary effect:

“But as ever in economics, there is no free lunch and someone will have to pick up the tab. If households are not fully insured, it will be them. If they have cover, it will be the insurance companies and, in turn, the owners of these companies, which may include our pension funds. The government will also need to stump up for the cost of repairing public infrastructure… In economic terms, the cost of making good the damage caused by the floods will be to lower the UK’s net wealth.”

In other words, flood defences can be seen as a genuine investment. We can for instance be very grateful to all those responsible for the design, construction and financing of the Thames Barrier – which has been used almost as many times this winter as in the whole of the 1990s.

So, are we currently spending enough on flood defences to meet future needs? It would seem not:

“The Committee on Climate Change estimate that we should have spent over £0.5bn more on flood defences between 2011-15 and that this under-spending could lead to avoidable flood damages of around £3bn in the coming years.”

Spending £500 million to save six times that amount would not meet the current investment criteria – flood defence schemes are “expected to show an incredibly high average of £8 of damage avoided for every £1 spent by the government.” As Julian Morgan notes, this is a much tougher test than that required of certain more highly-favoured infrastructure projects:

“Compare this with HS2, where most estimates suggest benefits of around £2 for every £1 spent.”

Obviously, the Government has a budget to balance. But there’s a danger of good-value investments being blocked while bad-value investments are approved, merely because paying the bill for the latter can be delayed or moved off balance sheet, while the former require public funds to be committed much sooner.

The irony is that getting investment in flood defences back on-track needn’t bankrupt the country:

“For instance, if we were to spend an extra £250m a year over the next five years to make up for the past shortfall and return spending to the Environment Agency’s plan, this would raise annual government spending by less than 0.04 per cent… Given the small sums involved, it need not derail plans to balance the budget in the next parliament.”

For the moment, the advocates of such investment are pushing at an open door – but they’d better move quickly. While the weather dominates the headlines right now, it’ll be a different story once the waters subside. Indeed our response to the floods of 2014 could soon look like our response to the riots of 2011 – i.e. a period of intense public concern followed by mass amnesia.

Until the next time, of course.

15 comments for: What will we really do to improve our flood defences?

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