Thursday 5 December 2019

Another stealth tax would merely add to the storm over keeping the floods at bay

Stock picture
Stock picture
Martina Devlin

Martina Devlin

The Floodmaggedon caused by Storms Frank and Desmond raise a series of questions about inadequate flood defences, when it's right to withhold insurance cover, climate change blindness and the consequences of planning failures by successive local governments.

But the answer to none of the above is to impose another stealth tax.

Consumers should not be obliged to shoulder the Floodmaggedon burden via a levy on policies, any more than individual householders in flood-prone areas ought to be cast adrift without insurance options.

As ministers met senior representatives from the insurance industry this week, the British solution has been flagged as a precedent offering a solution - Flood Re, a not-for-profit scheme owned and managed by the insurance industry.

It was established to ensure domestic properties at the highest risk of flooding receive affordable cover. Insurers can reinsure with other insurance companies to spread the risk, financed by a £10.50 (€14) annual charge on all household insurance policies.

But Irish policy-holders already pay two levies on all non-life premiums: a 2pc surcharge to cover the collapse of Quinn Insurance, introduced three years ago, and a long-standing 3pc stamp duty funnelled into the Exchequer without any ring-fencing for areas of need, such as flood defence.

That charge currently adds €102m annually to the Exchequer. So for year after year, governments have been using this as a handy revenue generator.

First, though, let's remind ourselves of Enda Kenny's admission at last month's landmark UN climate summit in Paris. Ireland will not meet EU policy targets on reducing greenhouse gas emissions by 2020. Less than a month after Enda made it clear the Irish Government doesn't regard global warming as worth changing our ways for, Storm Frank was on the rampage. Climate research has identified connections between greenhouse gases and extreme weather conditions. Not only does human behaviour increase the odds that an extreme event will occur, it makes such events more severe. But back to the insurance question. While the 2pc Quinn levy goes into the Insurance Compensation Fund to protect consumers, the 3pc stamp duty on non-life policies is subsumed into the Exchequer. Or to quote Michael Noonan in answer to a parliamentary question: "This stamp duty forms a part of general stamp duty receipts and is paid into the central fund along with other tax receipts." Not set aside for any particular use - flood defences, for example.

This raises a broader issue of why money claimed in the name of something specific isn't applied to that use. "However you term the tax, successive governments have been taking it from insurance premiums for many years and it begs the question, what are they doing with the money? They're just throwing it into the pot," said Conor Faughnan, the AA's director of consumer affairs. "The cost of any additional levy will be met by customers. Insurance companies don't pay insurance claims - that's a basic misconception. Customers pay insurance claims. Insurance companies just handle the transaction."

Abandoning those in flood plains who cannot get insurance cover is not an option. Clearly, they need affordable premiums. But flood defences must be put in place so that insurance companies can offer cover with some confidence. Over a long number of years, local authorities have failed to invest there, and this must be addressed urgently - with the cost covered by general taxation. Not by the imposition of yet another tax. What guarantee do we have that all of the tax will be spent on flood defence, after all? Some people feel aggrieved - with justification - that they can't get flood insurance even though their homes are not a flood risk. Insurers ought to study areas in more detail rather than make blanket decisions. Equally, they are private companies and there is a limit to the pressure which governments can apply to them.

Politicians including junior minister Simon Harris - who showed leadership and initiative during the flooding - argue that where the State has put in flood defences, the industry must insure properties. But some are temporary defences - known as "demountable defences" - and insurers are wary of them. Only 67pc of such areas have insurance cover compared with 86pc where defences are not removable. Demountable barriers are sophisticated and effective. But local authorities only move to install them on foot of flood warnings. Consequently, insurers are reliant on councils never missing a flood warning and council workers always getting them in place on time.

Meanwhile, a government report is due in the spring chaired by the Office of Public Works. Scant comfort to the people anxiously watching weather forecasts while they wait for the flood waters to recede and defences to be put in, and who remain without insurance cover. Their homes could be flooded again before that report appears.

There is a myth that the Irish insurance industry is extremely lucrative because premiums are high. While the latter is true, at least three of the major players are losing money, which explains their caution about flooding - and their conservatism is reinforced by the sight of areas under water which were never at risk before.

"Very bad planning decisions were made in the past where people were allowed to build on flood plains and so on," Brendan Howlin has said. It's an admission that historic inefficiency is contributing to the problem.

Unfortunately, corruption at local government level has also been alleged.

But solutions must be found.

Collectively, we have an obligation to help Floodmaggedon victims - but imposing another levy is the wrong way to do it. It will raise another storm by a different name.

Irish Independent

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