The Environment Agency is facing ongoing resource shortages and supply chain issues, according to its Annual Report and Accounts 2022 to 2023 published this week.

“Trust in the water industry has deteriorated”

Commenting in the Foreword to the report, Alan Lovell, Chair of the Environment Agency said:

“Delivering clean and plentiful water is the single most important thing there is, and it has been a huge area of focus this year. The public and the media are rightly focussed on the performance of the nine English water and sewerage companies. It has never been so prominent.

“Trust in the water industry has deteriorated. If it is to be re-built, we need to see profound, longterm change across the sector. We must all play our respective roles to deliver the Government’s Plan for Water and ensure we maximise the opportunities within the next 5-year price review.”

Alan Lovell said the Agency would play its role by transforming the way it regulates the sector. This will include investing in new specialist officers, data and tools – the EA Chair said this will significantly increase the time the EA is able to spend on regulating the water industry.

“Inflation has had marked impact on our ability to deliver flood protection capital programmes”

Philip Duffy, EA Chief Executive went into greater detail in his performance report about ongoing challenges the Environment Agency is facing.

Setting out the context for the annual report, the Agency Chief described the 2022-23 year as “by any standards (a) challenging time, commenting:

“The EA, like other organisations, had to contend with the after effects of the pandemic, the war in Ukraine and the cost of living crisis. Inflation has had a marked impact on our ability to deliver our flood protection capital programmes, with some key materials increasing in cost by up to 40%. We are working through what this will mean for our programme with Defra and will need to reset the programme later in 2023.”

According to Philip Duffy, the reality of climate change can be seen in the report. The drought and heatwaves of the summer of 2022 saw temperatures reaching 40°C for the first time in the UK and “forced the Agency to significantly redirect resources to maintain water supplies to communities”, he said. This led to increased water abstraction checks, water company drought permits, incident response and working with farmers and other major abstractors became priorities for many of the Agency water and ecology experts, requiring the EA to be at its “agile best.”

He went on to explain that the Agency had also looked at its existing processes to free up more capacity, including “streamlining those required to review the water industry’s next 5-year investment plan.” The Environment Agency had demonstrated how it can “flex resource to needs” whilst still maintaining momentum on its targets. “This type of working may become increasingly standard”,  he added.

Focus of the public on water quality and water companies’ performance has never been sharper

Commenting on water sector performance, Duffy said the focus of the public on water quality, and the performance of water companies, had never been sharper and that communities wanted cleaner water, better protected nature, and secure, clean water supplies for both new and future homes.

“What this means for us is the concentration of existing and new resources on water quality and supply that will help us further improve water quality”, The report says this resulted in 803 water company inspections last year, against a target of 500, helping the Agency to drive compliance and identify problems that are causing pollution, a continued focus which would “need to intensify in future years.”

Philip Duffy also expressed his disappointment that the National Audit Office had raised qualifications on the Agency’s accounts over “certain accounting matters, and a new regularity of spend qualification.” However, he noted the considerable progress the EA had made during the year, particularly on a “more robust valuation of (its) 60,000 separate operational assets.”

“I am personally committed to implementing the necessary actions to have these qualifications removed and am more widely committed to seeing the organisation reach the right balance between achieving operational delivery and compliance outcomes”,  he added.

The Environment Agency is currently implementing its 5-year action plan – EA2025 - via two main business areas which deliver EA2025:

• Flood and coastal erosion risk management (FCERM).
• Environment and business (E&B), which comprises of water, land, and biodiversity and the regulation of industry.

Delays in delivery of some flood and coastal risk management schemes 

Commenting on flood and coastal risk management assets, the report says there are over three million properties at risk of surface water flooding in England – something which happens when rain from major storms overwhelms local drainage. “It is a real and growing threat to life, property, infrastructure, and to the economy,” the report states.

The report goes into some detail with regard to the additional number of properties better protected since the start of EA2025. A total of 118 schemes have better protected 59,351 properties since the start of 2021, against a target of 65,000.

The biggest contributors included:

• Saltfleet to Gibraltar Point beach management, Lincolnshire and Northamptonshire Area: 2,338 properties.
• Wallasey embankment, Wirral (Greater Manchester Area): 1,735 properties.
• Burton upon Trent flood risk management scheme, phase 2 (West Midlands Area): 1,413 properties.

However, several projects had reported delays to delivery - around 13,000 properties will have their improved protection delivered in a later year of the programme instead of 2022-23.

The EA Chief explained that around three quarters of the delays were on projects led by local councils, with resourcing cited as a common issue, linked to recruitment and retention and in certain cases, supplier capacity. Additional reasons included:

• supply chain disruption
• cost pressures and inflation across the construction sector
• a more complex programme of projects with greater reliance on securing partnership funding.
• Flood asset maintenance funding currently lower than required

He went on to flag up lower maintenance funding for flood and coastal risk management assets as a particular issue, saying:

“Asset condition is directly related to maintenance funding, which is currently lower than required: while it is sufficient to sustain asset condition between 94% and 95% (reflected by current performance) it is not currently enough to restore asset condition to our 98% target. This is compounded by an ageing asset stock, more frequent and extreme weather, and an increasing number of assets.”

The report says that where assets are below their required condition this identifies that work is required. However, this does not mean that they have structurally failed or that performance in a flood is compromised.

Philip Duffy commented:

“We have prioritised the maintenance and repair of the highest risk assets. Where needed, we have risk mitigation measures and contingency plans in place to manage risk until any necessary repairs and maintenance are complete.”

Meeting original target of 336,000 properties better protected by April 2027 unlikely

The Environment Agency spent £234 million on asset purchases and additions to assets under construction in 2022-23. Assets under construction (AUC) is where the Agency holds construction costs of assets which take longer than 1 year to construct and includes major flood alleviation schemes and other specialist asset complexes. The main AUC projects this year were on works to the Boston barrier flood gate and works as part of the Thames Estuary 2100 plan to manage the risk of increasing flooding on the Thames.

Grant-in-aid has increased for environment and business and flood and coastal erosion risk management (FCERM) over the past five years. There were significant reductions in the previous six-year period, however, particularly in un-ringfenced environment and business resource funding, and overall environment and business grant-in-aid has only increased back up to a comparable figure to 2016-17 funding.

The flood capital programme is the single largest programme the Agency delivers with a government investment of £5.2 billion over 6 years (2021-2027.) Delivery is largely undertaken through contractors and more than 50% of schemes in the current programme will be delivered by local authorities. The report says:

“The impacts of high levels of inflation, and skills shortages in infrastructure as well as ongoing delays caused by the pandemic make meeting the original target of 336,000 properties better protected by April 2027 unlikely.”

On the 31 March 2023, the Agency had 11,844 full time equivalent employees and its annual expenditure for the financial year ended 31 March 2023 was £1.9 billion. Defra provides most of this funding, with approximately one third coming from other parties.

The National Audit Office is currently conducting a review to consider whether the EA’s and Defra’s approach to managing flood risk is likely to deliver value for money. The final report is expected to be published in November 2023.

Click here to download the Environment Agency Annual Report & Acoounts 2022-23