LGA response to Defra consultation on reforming floods funding

The LGA welcomes Defra’s commitment to reforming the system for allocating grant funding for flooding. Successful flood and coastal erosion risk management requires increased cooperation and cross-border partnerships, and the Environment Agency and water companies need to factor in more frequent and senior engagement with local authorities into their business model immediately.

We urge Defra and the Environment Agency to bring the knowledge and experience of lead local flood authorities into the prioritisation process so that investment in flood and coastal erosion programmes can be aligned with local ambitions for regeneration and environmental improvement. This is an opportunity to consider the value of schemes across a catchment area and look at the total impact on water systems, rather than assessing schemes solely on the benefits for the immediate area.

The current system for allocating Flood and Coastal Erosion Risk Management (FCERM) grant funding is complex and we agree with much of Defra’s analysis of the challenges for lead local flood authorities (LLFAs) in accessing the funding. For example, putting together a business case for funding may cost more than the grant awarded for smaller projects. The formulas that underpin the allocation system have made it hard for rural areas and surface water schemes to access funding. 

In general, we support the overall proposed approach to funding FCERM projects. 

Principle 1 – the first £3 million of eligible project costs to be notionally provided by Defra through a Contribution Free Allowance. Allocation of funding would be confirmed once the project has passed through the programme prioritisation step. 

We support this principle. It will help extend the kind of projects that can be supported through the FCERM grant, including maintenance projects and surface water projects. 

Principle 2 – a single basic rate of Defra funding to be notionally applied to all new FCERM project costs above the £3 million contribution free allowance, regardless of their outcomes. 

We support the introduction of a flat rate for Defra funding for projects over £3 million. Delivery partners including local authorities would still need to find additional funding for projects over £3 million (such as their own funding or contributions from other government departments) but it gives certainty and could help attract other funders. 

Principle 3 - All FCERM refurbishment projects are fully funded. 

This is a sensible adjustment, given the poor state of repair of many assets noted by the National Audit Office. It would be useful to understand how much funding would be allocated to maintenance, as this will reduce the amount of funding available for new schemes. Defra may wish to set a cap on funding for maintenance or use some other mechanism to ensure a balance between funding for maintenance of existing assets and the development of new ones. 

Additional considerations:

Property flood resilience (PFR)

We support increased flexibility for the delivery of property flood resilience measures. Schemes may need to blend different types of measures to deliver effective protection, for example providing traditional engineered solutions alongside property flood resilience measures. The revised grant application process needs to be flexible enough to support a combination of interventions.

Support for natural flood management

It is helpful that Defra is looking at ways to mainstream natural flood management. Updating the assessment and appraisal process for natural flood management projects is a practical way to do that, and we would be happy to work with the Environment Agency on this. 

The proposal to allow non-risk management authorities (such as community groups and landowners) to apply for flood investment to deliver natural flood management and sustainable drainage projects is an interesting idea. We would like to understand more about this proposal, and how it would fit with local flood risk management plans and the work of lead local flood authorities. Allowing community groups and other non-risk management authorities to take forward smaller projects must receive consideration and approval from local flood risk management plan managers, as even small schemes can have knock on detrimental effects up or down stream on other communities.

It may also create high levels of interest in a relatively small pot of money, noting that government intends to reduce competitive bidding processes for small pots of money. 

In principle we agree that projects should be prioritised for funding by value for money and risk, including the proposal that projects are assessed for value for money by ensuring that that benefits exceed the cost. We agree that funding should be prioritised in places where the risk is greatest (approach 1 in the consultation paper). 

Formulas and numerical tests have a role, but we need to use the opportunity of Defra’s review to end the “black box” nature of funding decisions made by the Environment Agency. 

We urge Defra and the Environment Agency to bring the knowledge and experience of lead local flood authorities into the prioritisation process so that investment in flood and coastal erosion programmes can be aligned with local ambitions for regeneration and environmental improvement. This is an opportunity to consider the value of schemes across a catchment area and look at the total impact on water systems, rather assessing schemes solely on the benefits for the immediate area. 

Engagement through Regional Flood and Coastal Committees is welcome but the Environment Agency must go further to include direct discussion with local authorities. The Environment Agency needs to factor in more frequent and senior engagement with local authorities into their business model immediately.

It is helpful to see the proposed transition arrangements. There will be a small number of schemes where the outline business case will be well developed but not fully complete by April 2026. Defra and the Environment Agency may wish to consider a short buffer period to avoid applicants having to go back to the beginning of the process, which would be a waste of time and resources on all sides. 

We urge Defra and the Environment Agency to act quickly on issuing new guidance and information well ahead of the April 2026 implementation date for the new funding approach. Updating the appraisal guidance will be critical in delivering the changes Defra is seeking.

We would be happy to work with Defra and the Environment Agency to raise awareness with local authorities, particularly councillors and senior council officers.

Private sector funding

Feedback from councils indicates that the design and process of the FCERM grant funding has been a barrier to securing funding from the private sector. For example, the need to draw up individual legal agreements with private investors means that in practice, only larger contributions are likely to justify the time and complexity of drawing up the agreement. The difficulty of explaining the complex funding process to third parties is a further barrier. The nature of the funding process means that the amount of public funding provided may not be agreed until the end of the project, making it difficult to secure contributions from other investors. Schemes with low level of public funding have struggled as a large funding gap leads to negative associations of failure.

There are other reasons why securing private contributions has been challenging. Economies where small and medium enterprises (SMEs) make up the largest part of the private sector have found it more difficult to secure funding. Commercial entities located in coastal erosion and flood risk areas frequently occupy leased premises, often on a short-term basis. The risks are typically associated to the asset owner and management on the individual property level managed via ‘continuity business planning’, insurance policies or property specific physical measures to address flooding and coastal erosion. There is little stimulus for commercial entities to fund schemes other than for philanthropic reasons and this is an increasingly difficult sell.

In additional to reform of grant funding, government should consider other levers to attract private investment:

• Identifying opportunities for greater alignment of local priorities and investment cycles from potential funders. Local authorities are well placed to lead on this, and access to training and case studies would be helpful in developing their capacity to bring in private sector contributions.
• Tax relief for private sector contributions only applies where grant funding is provided by the Environment Agency. Extending tax relief to all flood alleviation projects would incentivise private investment.
• Supporting local authorities to develop their skills in attracting private sector funding

Additional powers for mayors to secure funding could be helpful, and government should consider further devolution of powers to local authorities. FCERM projects operate in areas defined by geography and water systems, and these may not align exactly with strategic authority boundaries. For example, the well-regarded coastal management partnerships that bring local authorities together to respond to constant changes in the coastline and respond to fluctuating weather patterns. Devolving powers to local areas opens up greater flexibility for partnership working across areas at highest risk of flooding and coastal erosion. 

Opportunities

It is good to see that the consultation paper recognises the financial pressure on local authorities and the statutory role of lead local flood authorities. Local government has welcomed the government’s commitment to multi-year settlements as an essential part of financial planning. However, all councils remain under financial pressure.  

A Special Interest Group of Councils has been formed by LGA members councils to look at the funding arrangements for Internal Drainage Boards (IDBs). The current system of council tax levies is not sustainable, and while short term funding from government has helped to plug immediate funding gaps, we need a long-term solution. In the Local government finance policy statement 2025 to 2026 - GOV.UK the Government said it “recognised the need for a long-term solution and is working to explore potential approaches” for IDB finance.

While the Environment Agency has been able to increase the cost of fees and permits, councils have been locked into low charges set in legislation.  For example, councils are out of pocket due to the £50 limit on the charge for reviewing applications to work on ordinary water courses (the land drainage consent fee). LGA research found that the median cost to process the application is £250, five times the nationally set £50 application fee. We need government to change legislation so that councils deliver this statutory responsibility on a cost recovery basis.

Devolution

The LGA has long called for a more flexible funding model for managing flood risk and coastal erosion, combining capital and revenue funding into a single place-based pot. Devolution proposals set out in the consultation paper are a welcome step towards this. To achieve the ambitions for partnership working and increasing private sources of funding, government should consider a more radical form of devolution that allows capital and revenue funding for flooding and coastal erosion risk to be combined into a single pot with other sources of funding. This approach would allow local areas to support diverse outcomes aligned with local priorities, rather than nationally set measures. 

As devolution moves ahead in a more consistent and widespread way, we must ensure the devolution model is not narrowly focused on mayors alone. The success of strategic authorities relies on councils, communities, and public services working together with mayors in true partnership.

While there are good examples of regional mayors working in partnership with local authorities on flood risk, we need a broader view of devolution that gives councils the capacity to lead transformation.

We also need to recognise that effective partnerships structures for managing flood and coastal erosion risks will not map neatly onto the boundaries of local authorities and strategic authorities. Devolution should aim to build on existing partnerships, rather than adding confusion. Where powers are devolved, they need to go to the appropriate level of local government. This could be mayors and strategic authorities, but in some case direct devolution to local authorities may be as effective. 

Regional Flood and Coastal Committees (RFCCs)

Government proposes a greater role for RFCCs in determining which projects are approved. Each of the twelve RFCCs are very different in their approach, and Defra and the Environment Agency may wish to give some thought to the way that RFCCs operate to ensure that they are able to make informed decisions about local priorities, and make best use of the expertise provided by the RFCC members nominated by local authorities.