THE OXFORD FLOOD ALLEVIATION SCHEME:
REVIEW OF THE FINANCIAL BENEFITS (FLOOD PROTECTION) AND COSTS
by Tim O'Hara
Senior Chartered surveyor and expert witness in land tribunals.
This winter (2021/2) the Environment Agency intend to submit a planning application for their proposed Oxford Flood Alleviation Scheme. The scheme is expected to be almost the same as that for which a planning application was withdrawn in March 2020.
In their Business Case of March 2019 the Environment Agency stated that the scheme will have a benefit-cost ratio to be around 11.5 to 1. In other words, every £1 spent on the scheme gives rise to £11.5 worth of benefits. The benefits are those over a 100-year assessment period but converted into a present day value. These financial benefits are important because they represent flood damages that are avoided due to the scheme. The Environment Agency also claim benefits for the railway infrastructure and utilities. They claim it will bring environmental benefits as well.
However, the benefits of the scheme are not what they seem, and the financial costs have been understated. The following sections discuss the following:
The main financial benefits (flood protection for dwellings, businesses, and roads) of the scheme
What the scheme’s improvements in flood protection for dwellings might mean in real terms
The financial costs that have been excluded but which need to be taken account.
Flood protection for railways and utilities under the scheme
Other benefits and costs that should be considered, but which are hard to express in financial terms.
Whilst environmental benefits are claimed for the scheme, there are very significant environmental and social costs which are rarely referred to by the Environment Agency. In addition, at least two alternatives have been put forward since the scheme was formulated, both of which bring the promise of lower costs, and equivalent or better flood protection. However, the Environment Agency have hitherto refused to engage with them.
 On their figures this should be about 10 to 1. The 11.5 to 1 ratio is based on costs of £133 million, whereas elsewhere in the same document the costs are shown as £154 million.
1) FINANCIAL BENEFITS (flood protection) FROM THE BENEFIT COST ANALYSIS
The benefit-cost ratio referred to above derives from a benefit-cost analysis. In this context benefits are the flood damages (in financial terms) that are prevented by the scheme. These include damages to properties, contents, vehicles, and roads. Hence financial benefits are very important because they tell us something about actual flood protection.
Costs are the financial costs of construction and maintenance. The benefit-cost ratio is the former divided by the latter.
On the face of it a Benefit-Cost ratio of 10 to 1, or 11.5 to 1, appears to comprise a compelling argument for the scheme. However this is very misleading. This is because it has been arrived at by comparing it with an imaginary scenario where no flood alleviation measures were in place. In reality flood alleviation measures do exist: these were completed in 2012 as Phase 1 of the Oxford Flood Risk Management Strategy and included two culverts under Willow Walk. This is important because these already provide very significant financial (i.e. flood protection) benefits.
See Table 1. Summary of costs, benefits, and flood damages over a 100-year assessment period.
Source: EA 2019 Business Case for OFAS
"Current measures provide about 85% of the benefits of proposed scheme for much lower cost." - Tim O'Hara
The key take-aways from these figures are.
I. The current measures provide about 85% of the benefits of the proposed scheme (£1336m compared to £1574m).
ii.I n money terms the proposed scheme provides an extra £238m of benefits over the 100-year assessment period, but at an extra cost of at least £143m. (£154million less £11 million). Therefore, compared to what we currently have, for each £1 spent on the scheme we receive just £1.67 of benefits (over 100 years but adjusted to present value).
iii.It is expected that even under the proposed scheme there will still be flood damages, and these have a present value of £126m.
The above points are important for three reasons. Firstly: the extra financial benefits (reduction in flood damages) of the scheme are relatively low compared to what we currently enjoy from the existing measures (£238m compared to £1336m). The costs of the scheme need to be considered against the £238 million figure: this is important because the claimed construction costs are over half of this, and this is before environmental and social costs are taken into account.
Secondly: although the benefits have been adjusted to present value, climate change will increase the risk of flooding over time. This is apparent from Table 3 below. This means the flood alleviation measures will be called into use with increasing frequency over the years. As such the benefits (i.e., damages they prevent) will also tend to increase from year to year. This means that far more of the benefits are likely to be experienced after the first 30 years than before then. Set against this, all the financial costs (except maintenance), and most of the non-financial costs (e.g., traffic, loss of access) will be incurred from day one.
It is the nature of capital projects that investment is for future generations, rather than us. However, it is still worth being aware of the balance of costs to benefits to ourselves, especially where upfront costs are high relative to future benefits.
Thirdly: it is understandable that anyone affected by flooding will be less concerned by the value for money element than actual tangible improvements in flood protection. However, value for money is still important, especially for local and national government, and where there are pressures on public finance. This may leave the scheme vulnerable to rejection by the Treasury. On the other hand, one might expect the risk of this to be lower if the proposed scheme offered better value for money, and in particular had a lower upfront cost.
Facts & Figure - Benefits of Proposed OFAS Scheme
£11 million →
Cost of current measures ↓
Benefits of current measures over 100 years
£154 million →
Estimated cost of proposed scheme
Benefits of proposed scheme over 100 years
Does the proposed scheme represent value for money compared to current measures?
Proposed scheme provides just 15% extra benefits
At a cost of £143 million more
The current measures provide 85% of the benefits for 16% of the costs of the proposed scheme
2) WHAT THE IMPROVEMENTS IN FLOOD PROTECTION MEAN IN REAL TERMS
The Environment Agency figures indicate their scheme provides £238m pounds of extra benefit relative to the current measures: but what does this mean to individuals with homes at risk of flooding? The Environment Agency define flooding as where floodwater exceeds the property threshold, and quantify flood risk as follows:
Very significant is a 5% or greater (i.e. 1 in 20 or more) annual risk;
Significant is an annual risk of less than 5% but more than 1.33%; (i.e. less than 1 in 20, but more than 1 in 75)
Moderate is an annual risk of between 1.33% and 0.5% (i.e. less than 1 in 75, but equal or more than 1 in 200).
Tables 2 and 3 show projections for flood risk once the scheme is in place and 50 years in.
How many homes will be protected?
Therefore at the outset the scheme should provide improved protection for around 1000 (562 + 520 + 567 less 14 + 119 + 586) dwellings. In year 50, the scheme should provide improved protection for around 500 dwellings.
It is not clear if local residents are aware of how the flood risk has been quantified, nor how this risk will change under the scheme. The perception of risk is driven by past experience, but it needs to remembered that the current flood alleviation measures would have lessened the impact of floods that occurred before 2012 (when the measures were put in place). This is implicit from Table 1, because the current measures show benefits (damages that otherwise would take place) of over £1.3 billion. It is possible that some homeowners may see current risks as acceptable, for instance if they moved within the past 20 years, and believe that flood risk was factored in to the purchase price of their home.
 There are just over 250 dwelling on Osney Island, i.e. slightly under half of those properties currently in the very significant risk category. What is unclear is whether the improvement in flood protection to these properties under the scheme is entirely due to local defences; or whether other parts of the scheme play a part, and if so to what. For example para. 3.3.5 (p.26) of the Business Case states that the deployment of temporary defences reduces annual flood risk from 5% (1 in 20) to 2% (1 in 50).
 A reasonable question might be whether a £154 million scheme that protects 1000 private dwellings is a good use of public money. Flood-proofing each of these homes at a cost of £50,000 each would still cost less than one-third of the total cost of the scheme. Just writing the last sentence shows just how much the OFAS is providing private goods from the public purse.
3. Financial Costs that should be taken into account
1. Maintenance Costs and Increased Construction Costs
All schemes require maintenance, yet the costs for the scheme exclude maintenance after the first 10 years. The remaining 90 years are unfunded. This is significant because the business case shows predicted maintenance costs for the first 10 years as £6.62 million. Therefore costs for the remaining 90 years (before adjusting to present value) might be expected to be add a further £50 to £60 million. Bearing in mind that the net financial benefit of the scheme over the existing measures is £91 million (£238m - (£154m-£11m)), then this makes the scheme less financially viable.
Why is maintenance so important? After all there are few structures being built, and the main change is the excavation for a flood channel. The issue here, is that channels, especially shallow ones with a very small downstream gradient, are susceptible to clogging up if vegetation is not prevented from taking hold within it. If the efficacy of the channel were reduced so that it gave rise to a reduction in flood protection, then more properties might experience damages than otherwise would be the case. If benefits (protection from damages) were reduced by less than 6%, this would wipe out the £91 million difference between the costs and benefits, as compared to the current measures.
(ii) Costs increases since 2019
The £154 million figure dates from no later than early 2019. Since then it has become apparent that there are labour shortages in some key industries, including haulage, and potentially construction. Moreover, the size of the project means there is more scope for an absolute increase in costs than, say, simply maintaining the current measures.
Hence it would be naive to expect there be no further increase in costs. Those increases could be absorbed when costs were dwarfed by benefits. However, as shown above, the true ratio between costs and benefits is no better than 1.67 to 1, and far worse when maintenance costs for years 11 to 100 are added in.
"If the true cost of maintenance over 100 years was added in this could wipe out the estimated £91 million net benefits of the proposed scheme."
4) BENEFITS (FLOOD PROTECTION) FOR RAILWAYS AND UTILITIES
There is reference to these in an appendix to the 2019 Business Case. A note accompanying the analysis states “(these were) not identified as proportional at previous stage of study, (so they were) not included”. This suggests the benefits are low: in any event they have been excluded from the benefit-cost analysts.
Elsewhere in the Business Case there are descriptions of the benefits in terms of flood protection (see Table 4) but for some the level of extra protection has not been spelled out. For example, phrases like “lower risk” are used. Therefore, it is impossible to say if the extra protection is significant, much less whether it is worthwhile in comparison with the financial (and other) costs. In addition, it is unclear for all these benefits whether their realisation relies on the whole or just parts of the scheme. This is important, because it opens the possibility that some parts of the scheme bring disproportionate benefits, whilst others have disproportionate costs.
5) COSTS THAT SHOULD BE INCLUDED, BUT THAT ARE DIFFICULT TO EXPRESS IN FINANCIAL TERMS
(i) Increased traffic and other nuisances during construction.
The scheme requires the excavation of 400,000m3 of material, of which no less than 365,000m3 needs to be taken away. However 1m3 of material in the ground will de-compact to a larger volume upon excavation. Assuming a 20% increase in volume, this gives 438,000m3 to remove. This equates to 29,200 loads for an eight wheel tipper truck, and more than this if the maximum volume for these trucks (15m3) leads to the max load (20 tonnes) being exceeded.
The Environment Agency hope that much of this could by-pass trunk roads by use of the railways, but no such agreement has yet been announced. In any event, some if not all of the 29,200 loads will go along local roads, and then onto the A34. This gives rise to two issues, over the three to four year construction period.
Firstly, nuisances such as noise and dust from the works, together with traffic congestion can be expected in North and South Hinksey, and possibly other places. In theory some of the adverse effects from the construction of the scheme might be covered under the Compulsory Purchase Act 1965, but the EA have not made any explicit provisions for this in their costings.
Secondly, the potential for traffic congestion caused by heavy lorries trying to access the A34. Traffic delays and possible accidents incur costs on those caught up in them. This does not seem to have been reflected in the EA costs: the Highways Agency may still cost them, but there seems to be no mechanism to seek compensation for this.
(ii) Environmental costs
There are many environmental costs associated with the scheme (loss of rare grassland, increased risk to the remainder, loss of trees, carbon release from excavations, etc.) but putting a cost on these relies on more assumptions, and is typically less straightforward, than costing flood damages incurred and avoided. This also applies to the environmental benefits claimed for the scheme.
(iii) Social cost
A further cost is the loss of recreational access to the huge area through which the flood channel is supposed to run. This comprises the bulk of the green space west of the city but within the ring road. The value of this green space has been enhanced as a result of local housing development (and thus an increase in the local population) and the greater appreciation of recreation following Covid. Losing the use of most or all of this for several years is a cost that locals are being asked to bear.
The financial costs and benefits of the scheme are not as they seem from the headline figure put forward by the EA. In reality the scheme offers just a relatively small uplift in financial benefits over the existing measures.
Part of the reason for this is that the proposed scheme cannot act in tandem with the existing measures. This is because a major component is the transmission of flood water from north to south under Willow Walk. The existing scheme does this via two conduits, whereas the proposed scheme relies on removing Willow Walk in favour of a raised thoroughfare over a large new flood channel.
Moreover, the extra protection from flood risk from the scheme (at least in the short run) is relatively small, both in terms of numbers of dwellings and reduction in the probability of flood ingress. Yet this comes at a financial cost that logically must exceed the figure put forward by the Environment Agency. This is so much so, that it is questionable whether the scheme will provide any significant net financial benefit.
If there is no significant financial benefit over cost, then it would surely be questionable to proceed with the scheme. This is because there are substantial net non-financial costs such as those to the environment. Furthermore, other areas of the country also suffer from severe flooding, and schemes in these locations may offer more benefits relative to costs.
More importantly, it ignores solutions that have been suggested after the Environment Agency’s 2009 analysis of strategic approaches to flood alleviation for Oxford. Such solutions include using a pipeline to move flood water downstream, which on paper has significant cost/benefit advantages over the OFAS, including the potential to run in tandem with the current flood alleviation measures, and therefore increase flood protection relative to the proposed scheme.
There is a real risk that those of us who live in Oxford and our elected representatives assume the scheme is a good one, and/or are fearful of questioning anything that purposes to bring relief from the misery of flooding. However, until now we have not been asked to spend so much money, nor make such irrevocable changes to the natural landscape. With this in mind, the aforementioned alternatives to the scheme should be investigated.