We believe that a significant proportion of the leasehold sector will fall within the scope of Flood Re if the properties are at the highest levels of flood risk. I should emphasise, however, that we expect that most properties will not need to be in Flood Re and will find better prices through normal routes. We have been assured that there is no evidence of a systemic problem with freeholders being unable to obtain insurance for their leasehold properties. Specifically, feedback from members of the Association of British Insurers, representing over 60% of the market, including specialist commercial property insurers, showed no expectation of a widespread issue in an open market. As for the small businesses that are outside the scope of Flood Re, we and the ABI will monitor the market over time.
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My hon. Friend the Member for Thirsk and Malton raised a number of other issues, including small businesses, as she has done before. It is important to focus on the fact that the scheme is for residential properties, not for the commercial insurance market. Commercial cover tends to be far more bespoke and of a different nature to the policies that householders usually have. This is relevant to her point about the levy that is paid into the pot. In seeking to add to that pot in terms of what is paid out and the level of risk, we would have to add to what everyone else is paying for. We think that the balance is right and that the level of a more transparent cross-subsidy—there is already a cross-subsidy within the market that has been more hidden—is focused on household policies and not on commercial policies. The danger is that, once we start to get into the more commercial arena, we are then asking for a cross-subsidy from householders to commercial landlords. We therefore think it important to draw this line. Landlords already
benefit from tax relief on the cost of their buildings insurance policies. They can offset many of their costs through taxable allowances that can significantly reduce their tax bill—to zero, in some instances. The hon. Member for Penistone and Stocksbridge (Angela Smith) referred to this being more progressive, and I welcome her support. That is one of the reasons why we have had the scheme structured as it is.
My hon. Friend the Member for Brigg and Goole (Andrew Percy) mentioned properties built after 1 January 2009, as did my hon. Friend the Member for Thirsk and Malton. This is in line with the prior agreement with the industry. As I am sure my hon. Friend the Member for Thirsk and Malton is aware, that is where the date comes from, so it should not come as a surprise to those constructing properties in flood risk areas. It is a pre-existing cut-off date that we have carried forward into the new arrangements. As my hon. Friend the Member for Brigg and Goole pointed out, properties built after 1 January 2009 should have been constructed in line with national planning policy and should therefore be resilient to flooding and able to access affordable insurance. Maintaining this approach under Flood Re will help to ensure that new development is appropriate and resilient to flooding. That covers the points made by my hon. Friend the Member for Thirsk and Malton about the levy, in which I have confidence. We have to make sure that we base it on existing assumptions and do not seek now, at this late stage, to add other potential draws on the reserves of Flood Re and the scheme as a whole.
Flood Re will be an authorised insurer operating under the requirements of solvency II. Insurers must hold capital reserves that can be used to cover the cost of a catastrophic event. To assess the required capital reserves, insurers must keep their detailed catastrophe models up to date, including any changes in levels of insured risk such as from climate change. Flood Re will need to take account of climate change as part of its regulatory obligations in ensuring that it remains solvent over time. We therefore expect it to seek the best available advice on climate change, including external verification of its assumptions. Detailed audited information about Flood Re’s ongoing operation will be reported to Parliament on a regular five-yearly basis. Parliament will have the opportunity to vote on the levy and the eligibility thresholds of the scheme. I assure colleagues that the impacts of climate change will be considered during the entire lifetime of the scheme to ensure that Flood Re is resilient to changes to flood risk.
I would like to reassure my hon. Friend the Member for Thirsk and Malton about one-in-200-year events and what we experienced during the winter flooding this year. Although she may be right to point out that we had the wettest January in about 250 years, that does not equate to a one-in-200-year flood event; they are different things. As we have heard from hon. Members in several debates over the past few months, the effects of flooding are extreme for the families and businesses affected, but because about 8,000 properties were affected during the recent winter floods, we were nowhere near triggering the sorts of events that she mentioned. Should a one-in-200-year event occur, however, we have been clear that the Government have no direct liability. The Government would take primary responsibility for deciding how all available resources would be used, but the Government are not an insurer of last resort in that they do not have financial liability for Flood Re.