In a recent paper, Helm suggested the conventional approach to flood defence, carried out by the Environment Agency (EA), and financed largely by the Treasury, is “at best inefficient”, and that water companies have the “capability and scale” to take over duties from the EA.
The most important single step to be taken now is an “explicit recognition that the status quo is not only unsustainable, but is never likely to be sustainable”, he said. “A radical rethink starts with working out what an optimal flood defence system would look like.”
“It is also a question of urgency and timing. Whilst the EA may argue that now is not the time to break it up, since investment is urgent, in practice this is spurious,” he added.
“Now is precisely the time, and if it is urgent then the water companies have the capability and scale – as well as access to borrowing and financial markets – which the EA patently does not, and arguably never will.”
Utilities are able to borrow against their assets, as long as the debt and equity liabilities do not exceed the asset values, because they have a regulated asset base, which guarantees a revenue stream to reimburse them.
However, the paper said, for “somewhat obscure reasons”, flood defence was split from the water authorities and placed in a public sector agency, the EA (formerly the National Rivers Authority), following a “botched first attempt” at water privatisation in the late 1980s.
“The result,” he said, “has been that the flood defence costs of a river catchment are – unlike the water and sewerage costs of the river catchments – not socialised into regular utility bills.
“In retrospect, this was probably a mistake – splitting out dimensions of the river catchment system management reduced coordination incentives.”
Last month, Helm was reappointed as the chair of the Natural Capital Committee to oversee the development of the 25-year environment plan to improve England’s natural capital.