I don't want to exploit other's misery. I'd hate to be flooded right now, and have not been. I'm grateful.
That said, I'm aware I may not always be that fortunate. In that case I think this problem, along with others that might arise from global warming, needs to be tackled. That requires cash. Lots of it. I heard a minister yesterday mention the sum of £72 billion over the next twenty five years or so. Tonight the BBC estimated that the cost of the current floods is not less than £3 billion in damage. Then there's loss of earnings on top. Call it, say, $4 billion. Give or take.
The two numbers do not equate if this is a one off incident. You'd accept the £4 billion costs now and again if that was the case. But global warming suggests we'll have wetter winters in the future. In that case flooding on this scale, and worse, will be more likely. That does require action, and soon. I take the research on global warming seriously. If that's the case the scale of loss over the next 25 years more than justifies the cost of taking action - simple arithmetic proves it.
The trouble is that flood damage is, to large degree, a privately born cost and flood protection is a public good. This dilemma needs to be resolved to ensure appropriate action is taken soon enough. One way of doing this is to use current taxes but I think that inappropriate as a complete solution for several reasons:
1) This might spread the burden inappropriately. Candidly, not everyone is going to flood;
2) Part of this burden should be born by those who will benefit from it if they wish to continue to live in high risk flood areas;
3) Tax money cannot be committed by one government to bind a future government. In other words, the scale of commitment required may not be possible out of taxation revenues;
4) The management of a project of this scale requires consideration of accountability and governance that crosses national and local government boundaries and the jurisdiction of various agencies, all of which will need a mechanism to bind them into the process.
That suggests other options have to be explored. My solution is relatively straightforward, possible and of value to all participants and broader society. UK Flood Plc should be incorporated. This should be a company with a relatively limited share capital, all of which should be held on trust by the government (under irrevocable trusts) for the benefit of the communities of the UK recognised as being at risk from flooding, whether from rive water or inundation from the sea. Trustees should not just be the great and the good from the City and government, but representatives from communities affected as well. However - the overall number should be limited. A manageable and competent body is required.
This company should then issue bonds to raise the capital sums required to undertake the necessary flood protection work in the areas at risk. This might involve buying flood plains to ensure there are areas for flood water to lie, or agreeing compensation deals with farmers in advance of such need arising. It could include improved flood defence and drainage mechanisms. It could be that it entails improved infrastructure to prevent risk of failure of essential services. It might be sea walls. It could be pumps. I'm not an expert. But all these things seem plausible, and require significant cash.
The bonds would need to be paid for. This can be done in three ways:
1) A premium on household insurance in flood affected areas. I feel certain this could be negotiated and since insurance companies would benefit from the arrangement should prove viable for them;
2) An additional rate in those areas (this already happens in places like the Fens where the drainage authorities can collect a rate);
3) From taxation subsidy.
How much could be raised? That depends on the incentive I guess. But give or take £50 billion a year goes into pensions in the UK each year (when last I checked - which was three or four years ago). Most of that is wasted in buying second hand pieces of paper which then artificially inflate in value due to the deliberate shortage in their supply created by the London Stock Exchange and other similar such institutions around the world since these pieces of paper are called shares. Now suppose some of this cash was diverted to flood defence and think of the benefit. It would be considerable. So designing a bond that would meet the long term needs of the pension market is one way of attracting money.
Another is to issue a bond equivalent to a US local authority bond. These have their below market average rate of interest paid tax free on the basis that the return is paid out of local taxes and to raise additional local tax to then collect tax from the people paid interest out of the resulting pot makes little sense. Instead, the interest charge is reduced reducing the sum required to be raised by local taxation but the return is tax free in the hands of the recipient. If, say, the return was 75% of normal market rate this would still be a premium return for a 40% taxpayer, so creating a pool of investors looking for a long term safe haven for their money who might want to invest in this fund. The cash would, if you'll excuse the pun, flood in as a result, especially as people would know exactly what their money was being used for and would see a direct result both now and in the long term as a consequence in addition to any financial return they secure.
How easy would this be? Very. Give me a couple of months, a few advisers and a good parliamentary draftsmen and all would be ready for the pre-budget report. The benefits for the flood affected areas of the UK would be immense. Our safeguards against global warming would rise considerably. Our pension industry would benefit from a secure investment fund. As would those looking to save outside such schemes. It's a multiple win.
I just hope we could try it. Because this is the sort of financial engineering from which the world can benefit. Instead we have billions thrown at private equity deals. Now which do you think might be more use?