Storm Desmond: Government dropped plans for flood insurance scheme just before devastating floods

Government insurance scheme for homes was closed in summer to businesses, who were told to seek private schemes

Cumbria has suffered further flood damage over the weekend following continued rainfall (PA)

The Government dropped plans for a specialist flood insurance scheme for small businesses only months before hundreds of firms were devastated by Storm Desmond last week.

The insurance industry and ministers have spent years developing a scheme for home-owners who live on flood plains, to make sure that they have access to reasonably priced cover. Known as Flood Re, this will come into effect next year, but excludes commercial properties, unlike the previous agreement between insurers and government. Flood Re is funded by a £10.50 levy on household premiums across the country, which is used to reduce the cost of cover for people living in areas at high risk of flooding.

Oliver Letwin, who was in charge of Flood Re negotiations for the Government, privately told small business owners that it was his “dream” to establish a similar scheme for them. In August, however, his office wrote to flood campaigner Simon Tattersall, who owns presmises let to an estate agent in North Devon, stating that “the Government will not be pursuing a Flood Re scheme for business”.

A Government source said there was already plenty of business insurance available that would tackle the consequences of flooding, such as cover for shops being forced to shut down while repairs are made.

The source said Mr Letwin concluded a separate scheme for businesses would bring premiums down only “marginally” and so was not worth the cost of setting up. Mr Letwin is keener to spend money on flood barriers: last year, the Government announced plans for 1,400 barriers at a cost of £2.3bn. But a ComRes poll for The Independent on Sunday has found that only one person in five thinks the Government should raise taxes to fund better flood defences.

Mr Tattersall said Mr Letwin had been “blatantly misled by his experts”. He told Mr Letwin’s office that insurance to cover flooding was difficult to obtain and pointed out that his village, Braunton, had been flooded 21 times in 120 years. Research this year by the Federation of Small Businesses found that 75,000 smaller firms struggled to get flood insurance, and a further 50,000 had been refused cover. The Government has offered affected businesses in Cumbria and Lancashire £2,500 each to help them recover.

Officials at the Department for Environment, Food & Rural Affairs have been lobbied by the likes of the National Flood Forum to resurrect the plans for a Government-led insurance scheme for small businesses. Separately, the British Insurance Brokers’ Association is looking at developing an industry-led scheme, which executive director Graeme Trudgill said “will not involve government, legislation or a levy”. Tim Farron, the Liberal Democrat leader who was stranded by floods in Cumbria last week, has urged government to include small businesses in Flood Re. He said: “The Government needs to get serious about the situation we are in, and extend the Flood Re scheme to small businesses.”