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NAO warns on extreme weather risks to business

Author: ICAEW Insights

Published: 07 Dec 2023

Government’s unpreparedness for extreme weather events limits its ability to demonstrate whether value for money is being achieved.

The government remains underprepared for extreme weather events such as severe floods and heatwaves, which can devastate businesses and communities, says the National Audit Office (NAO) – despite the recent experience of a pandemic.

The government has no “clearly defined targets” and the absence of an effective strategy and targets mean it struggles to make informed decisions on investment, according to the new NAO report UK Government’s Resilience Framework

The NAO found limited evidence of risk assessments feeding into how funding was allocated. The public spending watchdog said the government ought to bring forward its resilience investment approach to 2025 to be implemented by 2028, instead of the current target of 2030.

“Government does not track or evaluate its spending on extreme weather. Until these plans are developed, it cannot demonstrate whether value for money is being achieved,” the report says.

Last year was the world’s hottest on record. Increasingly, the UK has been experiencing heatwaves, flooding and droughts, the impact of which costs businesses and communities billions of pounds in lost trading and clear-up. 

Analysis by PwC UK found that a severe flood, for example, could cost the UK more than £1bn. Over the past decade, the most expensive floods in terms of insurance costs occurred during the winter of 2015-16, which saw storms Desmond, Eva and Frank damage homes and businesses across the UK. 

The NAO report says that although the government has taken “some action to mitigate the risks posed by extreme weather events”, business owners and the public sector have no “clear common goal” to work towards.

Gareth Davies, Head of the NAO, says: “The UK’s experience during the pandemic demonstrated the vital importance of building resilience – and that lesson also applies to extreme weather events.

“Government needs to place sufficient emphasis on prevention and preparedness – clearly articulating the level of risk it will tolerate – and making informed decisions about prioritisation to ensure efficient and effective investment for the long term.”

The NAO recommends government risk managers should outline clearly defined targets for ‘what good looks like’, so that the public and private sectors are working toward a clear common goal. “Currently, the Cabinet Office does not have clearly defined targets, or an effective strategy in place to make the UK resilient to extreme weather,” the NAO says.

The independent public spending watchdog’s report assessed four extreme weather risks – droughts, surface water flooding, storms and high temperatures (including heatwaves) – to determine how well prepared the country is for the projected increasing frequency and intensity of such events. 

The report acknowledged that the government has taken some action to mitigate the risks posed by extreme weather events, including establishing the third national adaptation programme. But the NAO says the government needs to accelerate its preparation to limit the impact extreme weather events can have on people, businesses, and communities.

The NAO welcomes some recent government efforts to build awareness of the potential impacts of extreme weather, including the Met Office providing short-, medium- and long-range weather forecasts and issuing weather warnings when severe weather has the potential to have an impact on the UK.

But overall the NAO finds government has more to do. The organisation found that although 3.4 million properties are at risk of surface water flooding, surveys show that awareness among the public of the effects of these events remains low.

The NAO also recommends that the Cabinet Office should strengthen the leadership, accountability and assurance arrangements of extreme weather risks across government, including considering the merits of a Chief Risk Adviser. 

The Climate Change Committee pinpointed at least eight climate change risks that may each have costs running into the billions by 2050, assuming a 2°C increase in global temperatures above pre-industrial levels by 2100.

Alison Ring OBE FCA, Director of Public Sector and Taxation at ICAEW, comments: “The NAO highlights how we are not doing enough to prepare for the foreseeable effects of climate change. With the public finances on an unsustainable path even before the coronavirus pandemic and the energy crisis, the worry is that the government might not have the fiscal resilience to act as ‘insurer of last resort’ if we don’t take the steps to improve our climate resilience.

“The pandemic demonstrated all too vividly how costly being unprepared for a potential crisis can be. Temperatures are rising and so are the risks.”

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