My Lords, I shall start by echoing the view that Flood Re is a welcome scheme, and I congratulate the Minister, his colleagues and the industry on introducing it. The scheme is to be supported
in principle, but the devil may be in the detail. Other amendments grouped with mine allow the Committee to consider those who will be excluded from Flood Re, their ability to get insurance, and the costs of such insurance. Mine is a probing amendment but, that said, it is important in that it focuses on the significant absence of much-needed support to SMEs in the proposed Flood Re scheme.
Under the current provisions, small businesses of up to 49 employees are covered under the statement of principles. The Bill before the Committee proposes a new scheme, Flood Re, which is substantially built on the statement of principles. However, Flood Re provisions extend only to domestic properties and offer no protection at all to any businesses except a category called “micro-businesses” at risk of flooding. This is a really important distinction between SMEs and micro-businesses. My noble friend the Minister may be able to clear up exactly what that distinction is when he comes to sum up.
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The critical point that I wish to make is that small businesses are key to economic growth. The importance of flood insurance has been highlighted by recent adverse weather, and removing the protection for small businesses from the statement of principles leaves them vulnerable to very significant increases in insurance premiums and even facing the possibility of being unable to afford flood insurance. This would be disastrous for many small businesses, including the shops battered on so many seafronts recently, village shops and businesses in the heart of stranded local communities. The need for affordable flood insurance in high-risk areas is essential to these small businesses. I urge the Government to ensure that an appropriate form of flood provision for small businesses is available.
Of course I appreciate that businesses reflect a different risk from residential properties and as such Flood Re may not be an appropriate form of protection for them. However, I very strongly argue that some provision in this area is required. Small shops are more vulnerable to the effects of flooding compared to their larger competitors, with fewer resources to fall back on and less power to negotiate insurance provision. Many small shop owners have no greater knowledge or expertise than domestic customers. Small shops are at the heart of many communities. If they recover slowly from flood events, it can have a significant knock-on effect for the wider community. I believe that government-supported flood insurance provisions should cover all small businesses previously covered by the statement of principles, especially those dependent on the locality for trade and which, by their nature, support communities. This view is supported by the National Flood Forum and indeed the Association of Convenience Stores, whose campaign I support. Proposals to exclude small businesses are contrary to other government measures, including small business provisions such as those seen in the energy markets.
As I have stated, I accept that this scheme will cover micro-businesses operating out of domestic premises but not the wider small business community. I am concerned that this decision will lead to small businesses in areas at risk of flood being subject to exorbitant
costs to secure insurance. The Federation of Small Businesses has recently shown in its research that one in five small firms was affected by flooding last year alone and I am sure that that figure will be seen to have increased recently. The National Flood Forum has argued that:
“Flood Re should cover all businesses run from a home”.
It goes on to argue that:
“Small businesses should be included in Flood Re or alternative provided”.
Equally, the Joseph Rowntree Foundation has emphasised its concern about how repeated flooding could affect insurance premiums for small businesses. It suggests that consideration should be given to the implications of costly insurance for the future operation of businesses in high-risk areas, especially in small communities where they may not only provide an important economic function but are central to the functioning of their community.
Finally, I am pleased to report that London Councils supports this amendment. In some key areas of London, businesses are at risk of flooding as much as households. It is important that small to medium-sized enterprises and third-sector organisations, particularly those at surface level on our high streets, have access to affordable insurance cover. London Councils points out that flooding can devastate the economy of London’s high streets, many of which contain SMEs and charity shops. They are affected by damage not just to property but also to stock, and they can take a long time to recover. The flood hazard and risk maps published by the Environment Agency in December last year show that in the Thames area more than 166,000 non-residential properties are at risk of flooding, nearly 76,000 of which are in London. A significant number of these non-residential properties are small businesses. Bearing in mind all these representations, I beg to move.