JBA calls for a strategic approach to enhancing the flood resilience of local economies River Ouse, York - Image courtesy of Simon Chew, Lancaster University
Economic Costs of Storms Desmond, Eva and Frank Recent flood events have had devastating impacts for many families and individuals, but the long term effects are also likely to have far reaching implications for local economies. Current estimations suggested by PwC for the overall cost to the UK economy from damage by Storms Desmond, Eva and Frank are in the region of £3bn. The most recent research on Projections of Future Flood Risk, commissioned to support the planned update of the UK Climate Change Risk Assessment in 2017, states that current expected annual damages from flooding in the UK are £1.9 billion, expected to increase by the 2080s to £2.8billion assuming a 2°C increase in temperature and low population growth. That these three storms have potentially incurred losses beyond that expected by the 2080s show their exceptional nature, but also may be a sign of the times showing a serious increase in effort is needed to enhance our economic and social resilience to flood risk. Some Areas Affected Are Overly Reliant on MicroBusinesses The UK economy is dependent on micro-businesses (those with less than 10 employees) with just under 84% of our business base comprised of such firms. Flood impacts from the three storms have affected many areas across the north of England, Wales, Scotland, Ireland and the Isle of Man and many local economies affected are particularly reliant on
microbusinesses. For example, three of the worst affected areas – Glenridding in Cumbria and Ribchester and Whalley in Lancashire - are in local authority areas whose business base is comprised of over 87% microbusinesses. Similarly, in Scotland and Wales, Aberdeenshire was particularly badly affected with flooding in Ballater and Inverurie and flood events occurred in Welshpool (Powys) and Pontypool (Monmouthshire) – these local authority areas are also more dependent on microbusinesses then the UK average. BIS considers that businesses, particularly small businesses, have shown great resilience in the face of challenging economic conditions in recent years, and the number of small businesses has continued to grow. However, how resilient are these businesses to climate impacts? Resilience of Small Businesses to Climate Impacts Small businesses, like any other, should consider resilience to extreme weather events in their business continuity and emergency planning. However, this may be overlooked by the smallest companies that focus more on their day-today operational priorities. But, as has been shown over the last few weeks, a severe flood can have immediate significant impacts for small businesses in terms of damage to stock and ability to continue trading, as well as the potential threat to the safety of staff and customers. Assets and equipment may be damaged and in the longer term, insurance premiums may rise and reputation could
the supply chain to large businesses such as Sellafield and BAE extending these impacts and specific concerns were highlighted regarding future investability and impacts on business confidence for the future. The ability of small businesses to adapt – their adaptive capacity – is potentially constrained by limited time horizons in their business planning. A key finding from research on the economics of climate resilience undertaken to inform the National Adaptation Programme and the adaptation plans of the Devolved Administrations was that ‘Some businesses, particularly SMEs, may be short-sighted in their business planning processes. This may hinder the identification of longer-term risks for which adaptive capacity needs to be built now to build flexibility to adapt in the future’.
River Eamont, Eamont Bridge, Penrith, - Image courtesy of Andrew Wright
be affected if orders are delayed or customers have to go elsewhere, even for a short period of time. Particular concerns have been highlighted by IHS in relation to noninsured losses from Storms Desmond, Eva and Frank which are estimated to comprise between 15% and 35% of the overall losses . In addition, disruption to power supply and transport infrastructure can have a major impact on the ability of small firms to do business. A further issue is the potential for image and reputation damage of a business, town or area in relation to flooding which can have a particularly detrimental impact for the tourism sector (largely comprised of microbusinesses) as this can lead to a reduction in visitors in the short and sometimes, longer term. JBA undertook research for the Welsh Government in 2013/14 concerning the potential impact of climate change on the Welsh tourism sector. The study revealed that the majority of tourism businesses in Wales were small businesses and generally did not have the resources or capacity to plan ahead to ensure resilience to extreme weather events and longer term climate change. It also revealed the crucial role of infrastructure resilience, enabling the continued operation of transport, power and telecommunications systems.
Support for Businesses Affected by Flooding The Government is providing local authorities with funding via the Community and Business Recovery Scheme to support households and businesses affected by flooding from the storms. Funding equivalent to £2,500 is being provided to local authorities for each business affected and funding is being made available to enable local authorities to offer a 100% Business Rates discount for firms that have been impacted by flooding. The Bellwin emergency scheme has also been activated. JBA’s local resilience lead, Peter May, has been asked to advise Government on the delivery of the latest repair and recovery guidance and grant support. Emergency repairs are one thing, but building longer term resilience is quite another. And with all the will in the world, strategic flood defences will never be able to protect all businesses from flooding. The Property Protection Advisor web resource which is managed and maintained by JBA on behalf of Defra (and hosted on the National Flood Forum website) provides a ‘ready reckoner’ to assess the costs of increasing the resilience of properties to flooding. Site hits increased from under 100 a month from January to September last year to almost 600 in December with over half of these occurring from 26 December onwards. But is this a case of shutting the stable door once the horse has bolted? Whilst many commentators from the flood risk industry and elsewhere have identified the volume of rainfall as unprecedented, this does not mean such events will not happen again and we need to be better prepared for them.
Recent research concerning the impact of flooding and flood risk on community economic resilience in the Upper Calder Valley revealed that the biggest loss to the local economy came from the drop in trade amongst businesses and their supply chains for up to a year after the floods – this resulted from both reduced footfall and businesses’ flood-affected customers, with transport disruption and a negative media focus also identified as probable contributing factors. Flood risk was identified as having severe consequences for business confidence and problems accessing insurance was also identified as a major issue. More recently, evidence given at the EFRA Committee hearing on 6 January 2016 by the Cumbria Chamber of Commerce highlighted the impacts of the three recent storms on the Cumbrian economy. 10% of businesses in Cumbria have been affected: 2,000 directly and 4,000 indirectly due to supply chain and infrastructure interruptions. Many small businesses provide a vital link in
Main bus station, Lancaster - Image courtesy of Barry Hankin
and Combined Authorities have the opportunity to ensure that this guidance is not just adhered to, but that climate resilience is actively promoted in day to day implementation and delivery. Similarly Business Wales, Scottish Enterprise and Highlands and Islands Enterprise should ensure that business support and infrastructure investment programmes embed and promote climate resilience. In doing so, it is essential that an environment for sustainable business growth is created that embeds and promotes adaptive capacity. This could help reduce the economic costs of flooding and reduce dependence on traditional flood defence schemes. Annex 1: locations impacted by recent storms and their business base The following table identifies the locations affected by flooding (either directly or knock-on impacts such as power outages), the local authorities in which they are located and the proportion of the business base which is comprised of Small and Medium Sized Enterprises (SMEs) and microbusinesses. It is important to note that the identification of locations affected by flooding has been informed by a rapid internet local media search and therefore may not be exhaustive. Hardwicke Circus main roundabout - Carlisle- Image courtesy of Alex Masters
A Strategic Approach to Building the Resilience of Small Businesses Small businesses are the backbone of the UK economy and whilst they may be disparate in nature, a strategic approach to building their resilience is essential, both in terms of business support enabling enhanced individual preparedness and wider infrastructure improvements ensuring the sustainability of access, power supply and communications. The flood footprint from Storms Desmond, Eva and Frank in England largely corresponds with the area designated by the Government as the Northern Powerhouse. The Northern Powerhouse initiative was established to help redress the imbalance between economic growth in the north and south of England: flood damage on the scale resulting from the recent storms could provide a significant constraint to achieving this ambition. Local Enterprise Partnerships (LEPs) and Combined Authorities across the Northern Powerhouse area and its more rural hinterland of Lancashire, Cumbria and North Yorkshire have responsibility for directing business support and infrastructure investment. Individually and collectively, reviewing their Strategic Economic Plans (SEPs), Growth Deals and European Structural and Investment Fund strategies could provide opportunities to better embed and promote climate resilience in decision-making. Last summer, JBA reviewed the climate adaptation activities of those local authorities and LEPs at highest climate risk to inform the Committee on Climate Change’s first report to Parliament regarding the implementation of the National Adaptation Programme. This revealed that the majority of LEPs had taken account of flood risk in their strategic plans. Building the climate resilience of small businesses and enhancing the climate resilience of infrastructure were also identified as priorities for some LEPs, but not the majority. Growth Fund and SEP guidance highlights the importance of LEPs creating an environment which enables private investment in growth – supporting confidence and making it attractive for businesses to invest. European Structural and Investment Fund strategies are required to ‘ensure strategies and activities take full account of the opportunities and risks of climate change over the life of the programme’ . LEPs
Data for local authorities’ enterprise base has been obtained from the Interdepartmental Business Register (ONS), 2015 for the UK and the Irish Government’s Central Statistics Office, 2012 (the most up to date data available).
Colby Glen, Isle of Man- Image courtesy of Peter Wilkinson
Lancaster - Image courtesy of Barry Hankin
County
Flood Event Location
Local Authority
When/Which Storm
% SMEs % micro
Cheshire
Warrington
Warrington
Eva
18.5%
80.6%
Cumbria
Keswick, Braithwaite
Allerdale
Desmond, Eva
14.8%
85.0%
Carlisle
Carlisle
Desmond
17.8%
81.7%
Glenridding
Eden
Desmond, Eva and Frank 13.1%
86.6%
Kendal
South Lakeland
Desmond, Eva
15.4%
84.5%
Radcliffe, Summerseat
Bury
Eva
14.6%
85.2%
Littleborough, Rochdale
Rochdale
Eva
18.0%
81.5%
Kersal, Lower Broughton
Salford
Eva
18.7%
80.8%
Croston
Chorley, Lancashire
Eva and Frank
14.8%
84.9%
Lancaster, Morecambe
Lancaster
Desmond
18.1%
81.5%
Ribchester, Whalley
Ribble Valley
Eva
12.0%
87.7%
Ormskirk
West Lancashire
Eva
17.5%
82.1%
Birkdale, Maghull
Sefton
Eva
17.6%
82.1%
Newton-le-Willows, Rainford
St Helens
Eva
20.0%
79.5%
Northumberland
Corbridge, Hexham
Northumberland
Desmond, Eva
15.6%
84.2%
North Yorkshire
Malham Cove, Skipton
Craven
Desmond, Eva
14.0%
85.8%
Knaresborough
Harrogate
Eva
14.7%
85.1%
Tadcaster
Selby
Eva
14.0%
85.6%
York
York
Eva
20.8%
78.9%
Baildon, Bingley, Haworth, Saltaire Bradford
Eva
17.4%
82.0%
Hebden Bridge, Mytholmroyd
Calderdale
Eva
16.9%
82.7%
Collingham
Leeds
Eva
18.4%
80.9%
15.7%
83.9%
12.9%
86.9%
ENGLAND
Greater Manchester
Lancashire
Merseyside
West Yorkshire
England SCOTLAND Ballater, Inverurie
Aberdeenshire
Frank
Annandale, Dumfries, Langholm, Lockerbie, Newton Stuart
Dumfries and Galloway Desmond and Frank
16.2%
83.7%
Lossiemouth
Moray
Frank
17.8%
81.8%
Aberfeldy
Perth and Kinross
Frank
16.9%
82.8%
Hawick, Newcastleton, Peebles
Scottish Borders
Desmond and Frank
14.3%
85.5%
Girvan
South Ayrshire
Frank
18.2%
81.2%
Bridge of Allan
Stirling
Desmond
17.0%
82.6%
18.5%
81%
Scotland WALES
Wales
Pencoed
Bridgend
Frank
19.6%
79.8%
Llanishen
Cardiff
Frank
20.8%
78.4%
Ferryside
Carmarthenshire
Frank
14.1%
85.6%
Llandrwst
Conwy
Eva
17.1%
82.8%
Corwen, St Asaph
Denbighshire
Desmond and Eva
17.1%
82.8%
Bangor, Llandygai, Llandrug
Gwynedd
Desmond and Eva
15.3%
84.6%
Beaumaris
Isle of Anglesey
Eva and Frank
15.2%
84.8%
Pontypool
Monmouthshire
Frank
11.5%
88.2%
Welshpool
Powys
Desmond
10.7%
89.2%
Cowbridge
Vale of Glamorgan
Frank
14.7%
85.1%
Holt
Wrexham
Frank
18.5%
80.9%
17.0%
82.6%
County
Flood Event Location
Local Authority
When/Which Storm
% SMEs % micro
Clonlara, Ennis
Clare
Desmond
7.6%
92.1%
Blackpool, Middleton
Cork
Desmond and Frank
8.7%
91.1%
Ballinsloe, Claregalway, Galway
Galway
Desmond
9.1%
90.7%
Tralee
Kerry
Desmond
8.3%
91.6%
Instioge
Kilkenny
Frank
8.1%
91.7%
Carrick-on-Shannon
Leitrim
Desmond
6.2%
93.4%
Limerick City
Limerick
Desmond
9.4%
90.4%
Crossmolina, Foxford
Mayo
Desmond
8.8%
91.1%
Athleague
Roscommon
Desmond
6.4%
93.3%
Clonmel
Tipperary
Desmond
8.0%
91.8%
Athlone
Westmeath
Desmond and Frank
8.5%
91.3%
Bray, Wicklow
Wicklow
Desmond and Frank
6.8%
90.7%
9.0%
90.7%
IRELAND
Ireland
References 1: http://www.cityam.com/231565/economic-impact-of-storms-eva-desmond-and-frank-could-hit-3bn 2: Sayers et al (2015) Projections of future flood risk in the UK - https://www.theccc.org.uk/publication/sayers-for-the-ascprojections-of-future-flood-risk-in-the-uk/ 3: interdepartmental Business Register (ONS), 2015 4: Department for Business, Innovation and Skills (2013) BIS Analysis Paper Number 2 SMEs: The Key Enablers of Business Success and the Economic Rationale for Government Intervention - https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/266304/bis-13-1320-smes-key-enablers-of-business-success.pdf 5: http://www.cityam.com/231565/economic-impact-of-storms-eva-desmond-and-frank-could-hit-3bn 6: http://www.nationalfloodforum.org.uk/wp-content/uploads/Calderdale-flooding-community-economic-resilience-finalJan-2015.pdf 7: http://randd.defra.gov.uk/Default.aspx?Module=More&Location=None&ProjectID=18016 8: https://d2kjx2p8nxa8ft.cloudfront.net/wp-content/uploads/2015/06/Survey-of-LA-Action-CCA-Final-Report-260615.pdf 9: https://d2kjx2p8nxa8ft.cloudfront.net/wp-content/uploads/2015/06/6.736_CCC_ASC_Adaptation-Progress-Report_2015_ FINAL_WEB_070715_RFS.pdf 10: https://www.gov.uk/government/publications/growth-deals-initial-guidance-for-local-enterprise-partnerships 11: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190879/13-747-structural-and-investmentfund-strategies-preliminary-guidance-to-leps.pdf
With thanks to Steve Lucas, Development Economics
Contact: Rachel Brisley | Tel: +44 (0)1925 570 876 | rachel.brisley@jbaconsulting.com www.jbaconsulting.com | twitter.com/JBAConsulting