CAG have a long history of work on energy efficiency, a field in which ‘split incentives’ are well known. This is the barrier to progressing energy efficiency measures in rented properties, brought about by the building owner having the powers to carry out energy efficiency improvements but not the incentive to do so. Since they don’t occupy the building, the incentive for improving the energy efficiency lies instead with the tenant. This is one of the main reasons why the energy efficiency of private rented properties lags behind those in the owner-occupied sector.

In recent years, we at CAG have been applying our evaluation and research expertise in the field of flood risk management. Most significantly perhaps, we led on the evaluation of the arrangements for managing local flood risk in England for Defra. We built on that wider evaluation by carrying out an in-depth review of local approaches to surface water flood risk management, also for Defra. One of the key findings of that review was that split incentives are rife in surface water management.

In contrast to many flooding incidents (where sources are often integrated) and the drainage network (which is also integrated), responsibilities for different sources of flood risk and different parts of the drainage network are split between different agencies. Whilst the Lead Local Flood Authority might have lead responsibility for ensuring surface water flood risk is managed, many of the ‘tools’ for taking action to address that risk lie with other agencies:

• with the Environment Agency through administering funding for schemes (Flood Defence Grant in Aid);
• with Water and Sewerage Companies through managing combined sewers;
• with Local Planning Authorities through their setting and discharging of planning conditions on new developments; and
• with Local Highways Authorities through their highways maintenance activities.

This complex arrangement of roles provides fertile ground for split incentives. The agencies often with the most scope to influence the management of surface water at source (e.g. the Lead Local Flood Authorities, Local Planning Authorities and Local Highways Authorities) are not necessarily those who are most impacted by it (e.g. the Water and Sewerage Companies, because of the increased pressure it can place on their networks) and are therefore not always incentivised to do so.

Imagine a new development (consented and conditioned by the Local Planning Authority) with associated works to the local highways (controlled by the Local Highways Authority). Both of these activities could lead to an increase in surface water flows but any flows that result will most likely not be the responsibility of either of those agencies. Should the surface water drain into a combined sewer, it then becomes the responsibility of the relevant Water and Sewerage Company. Should it drain into a watercourse, managing any resulting increase in flood risk would be the responsibility of the Environment Agency (in the case of main rivers) or the Lead Local Flood Authority (in the case of ordinary watercourses).

Where partnership-working between the key agencies is not well established or not working well, these split incentives will inevitably undermine efforts to address sources of surface water risk.

And the risk is significant. It is estimated that around 3.8 million homes in England are at risk from surface water flooding and with a growing population, urbanisation and climate change, these risks are increasing. The National Climate Change Risk Assessment carried out in 2016 confirmed the potentially severe consequences of surface water flooding, with particular risk in large urban areas. The Committee on Climate Change’s update on Progress in Preparing for Climate Change identified that risks of surface water flooding in towns and cities have not been adequately tackled and should be addressed in 2018.

Defra’s Surface Water Management Action Plan, published in July 2018, recognises the challenge of clarifying responsibilities and improving coordination. Central to this is strengthening the leadership role of Lead Local Flood Authorities. The action plan recognises, as identified in our review, that “not all LLFAs have the skills or capacity to carry out their surface water management responsibilities effectively and recruitment and retention of staff is a challenge”. Funding is an additional challenge. The action plan includes actions to:

• advise and support the local government sector and identify local authorities in need of priority support;
• develop systems to enable skills sharing and mutual support between authorities; and
• review the funding sources which are available for surface water risk management and consider whether the funding mechanisms are appropriate.

These are important actions in ensuring that Lead Local Flood Authorities can indeed ‘lead’ on surface water management, but the split roles and split incentives inherent in the system mean that effective leadership will only be achieved through the hard, long-term and often messy business of partnership-working with all of the agencies involved.

For further information on CAG’s work on flood risk management, contact CAG Partner Tim Maiden, tm@cagconsult.co.uk, 07961 541281