Wet weather was the distinguishing feature of the last winter in the UK. It was the wettest since UK-wide records began in 1910, with 517mm of rain having fallen by 27 February, against an average winter rainfall of 330mm over the previous 30 years.
In mid-February, with the floods at their height, the government waded in to reassure the public that financial support would be provided for flood and storm-ravaged households and businesses. Money would be no object, said the prime minister. But have these pledges translated into reality? And how can accountants help their clients access promised support and plan for similar weather events in future?
The measures announced in February included 100% business rate relief for three months for flood-affected businesses with rateable values of £10m or under; council tax rebates for flooded domestic properties; a £10m business support scheme for small and medium-sized businesses; and repair and renew grants to improve the flood-readiness of commercial or domestic properties (in England). The government also announced a £10m support fund for flooded farmers and a £2m fund for tourism-reliant businesses.
However, in most cases, tax reliefs or additional financial support will be provided via local authorities. It is not yet clear how government will prevent the creation of a postcode lottery. A second cause for concern is that the sums on offer amount to a little more than a few thousand pounds in most cases. That’s not to be sniffed at, but in many cases it will fall a long way short of the costs faced by flooded businesses and householders.
The business rate relief will undoubtedly be welcome. Businesses with a rateable value of £10m or less are eligible if they were flooded in whole or in part on at least one day between 1 December 2013 and 31 March 2014 as a result of adverse weather conditions. Clive Lewis, head of enterprise at ICAEW welcomes the relief and the £10m business support scheme, but has some concerns over how it will run in practice.
Businesses will be able to claim to the business support scheme for costs including materials, temporary accommodation, clean-up costs, business continuity planning and marketing costs, as well as structural surveys and security measures.
Unlike the business rate relief and the repair and renewal grants, this scheme can also be used by businesses that were indirectly affected by the floods. Indirect impacts are defined as situations where a business has had no or “highly limited” access to premises, equipment and stock, or restricted access to customers and suppliers, so has suffered significant loss of trade. The government’s Flood Support Schemes Guidance Note (updated 24 February) says that in similar schemes in the past the average claim was around £2,500.
The Guidance Note contains an Annex (D) detailing funding allocations for different local authorities in Tranche 1 of the scheme. They range from low five figure sums for some affected areas to allocations of over £300,000 in others. Lewis has concerns as to the effects these disparities might have on fund allocations. “If lots of businesses in an area have been indirectly affected the money could go quite quickly,” he warns.
A spokesperson for the Department for Business, Innovation and Skills (BIS) responds: “We deliberately kept that scheme very simple, so the money would reach businesses much more quickly. The first tranche of funding was based on Environment Agency statistics. We didn’t want lots of form-filling and bureaucracy. The priority is to get money to affected businesses.”
Slightly larger sums of money may be available via the Repair and Renew Grant scheme, which launched (in England only) on 1 April. Grants of up to £5,000 will be available to fund new flood resilience measures, which should also help to cut insurance costs. The scheme is being run by the Department for the Environment, Food and Rural Affairs (DEFRA), which suggests property owners use the online Property Protection Adviser website to discover which measures might be suitable for their property. DEFRA removed the need for a mandatory survey before allocations can be made.
The major banks also announced measures to help flooded customers, including emergency overdraft facilities and loan repayment holidays. RBS NatWest launched a £250m Storm Business Fund to help flood-affected businesses, whether or not they are customers of the bank, offering loans (interest-free for three months) to cover the cost of repairs and replacement stock.
Farmers were particularly badly hit with 50,000 hectares of agricultural land flooded, according to the National Farmers Union (NFU).
Although the final costs are not yet clear, when 42,000 hectares were flooded in the summer of 2007 the cost was £50m, of which only 5% was covered by insurance.
The £10m Farming Recovery Fund provides assistance to farmers who need to restore or maintain pasture or arable land, vehicle access to fields and drainage. Emergency funding of up to £5,000 will be available to cover up to 100% of uninsured losses. In some circumstances farmers can make a claim for up to 50% of costs for damage to agricultural machinery or buildings. Farmers will also be able to apply for grants from the Farming and Forestry Improvement Scheme, of up to £35,000, for flood resilience measures.
There has also been a heartening response to the distress of the farming community in the form of donations from other farmers and businesses, but some businesses may never recover. “If farmers with a significant amount of land under water have lost fodder crops, hay or silage they will have to buy all of that,” says Phil Bicknell, chief economist at the National Farmers’ Union (NFU). “If you have a hundred hectare farm and you reseed the grass, that’s £15,000 before machinery and fertiliser costs.” He points to the case of James Winslade, a Somerset farmer who has had to move his cattle from his flooded farm to temporary accommodation after losing animal feed, 7,800 bales of hay and 3,000 bales of straw. His total losses may well exceed £150,000.
Bicknell says the NFU will reserve judgement until it sees how effectively the government allocates money to farmers in need. But it is pushing for a full review of the government’s flood and coastal risk management policy and would also like to see additional tax averaging arrangements introduced, to help farmers deal with profits and losses that can vary hugely from one year to the next if extreme weather strikes.
At present farmers can add together profits for two years and be taxed on half the total profit. The NFU wants a scheme like that used in Australia, where a limited amount of farming profits in a good year can be placed in a designated bank account, deducted from profits, then taxed if there is a need to use it to meet costs during less successful years.
Bicknell believes accountants have an important role to play as advisers to farmers. “We saw in 2012/2013 farm incomes for most sectors fall pretty dramatically,” he says. “When you’ve got that amount of volatility in farm profitability, doing more ‘what if’ scenarios alongside the business plan is a good idea.”
The government is also working closely with insurers to ensure they provide adequate support to customers. Some £14m of emergency payments had been made by insurers to households and businesses between 23 December and 18 February, with sums ranging from £500 to £3,000, paid via direct bank transfer. In the same period there had been 8,800 flood claims worth £193m and 165,000 storm damage claims worth £232m. David Williams, managing director of underwriting at AXA Insurance, says his company has handled over 21,000 flood and storm claims since the start of December.
“It’s been a terrible time but it’s a much smaller event than the floods we saw in 2007,” he says. “What happened then has shaped the response from insurers in 2013/14.”
He says AXA and other insurers have been able to call upon hundreds of non-specialist staff, to handle run-of-the-mill claims, leaving claims specialists to work on more complex cases.
With meteorologists and climate scientists predicting more floods in future Lewis also stresses the potential value of accountants as business advisers for affected organisations.
“When the waters have receded people have to start thinking about the longer term,” he says. Accountants have a valuable role to play, helping clients access all potential sources of support now – but also helping them plan for more wet, wet winters in the years ahead.
The Flood Support Scheme guidance note and Farming Recovery Fund application form can be downloaded from gov.uk, while the Government Business Support Helpline can be reached on 0300 4563565. For further advice, contact the National Flood Forum nationalfloodforum.org.uk, or get information on how accountants can help small businesses from the ICAEW at icaew.com/enterprise.