LGF 2018: Due Diligence Assessments

Houghton Brook Flood Storage Area

Project Overview

The Environment Agency is seeking £1 million LGF towards a £6 million capital investment scheme. This project will provide a flood storage area to the north of Luton to protect against the risk of flooding of commercial and residential areas, particularly in Luton town centre. The project will be delivered by the Environment Agency and completion is expected by November 2020. The project is expected to deliver: • £35 million in economic benefits associated with the reduction in flood risk for 643 residential and commercial properties. • £52 million in economic benefits associated with potential new investment on town centre sites benefiting from enhanced flood protection. The investment is expected to encourage new investment in Luton town centre through improving business confidence and allowing the more efficient use of development sites within the town centre by reducing the requirement for on-site flood mitigation.

Project Recommendation

This project is recommended for LGF.

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LGF 2018: Due Diligence Assessments

Assessment Summary

Project Description

This investment will involve the construction of a flood storage area to mitigate against flood risk in Luton. The most significant recent flood event was in 2007, where key properties and infrastructure were affected, including: a local medical centre, Luton central fire station, Wardown Park, the A6 arterial road, Airport Way and residential properties along Lewsey Brook, Houghton Brook and the River Lee. This scheme will protect 643 residential and non-residential properties, infrastructure and access routes in Luton (A6 and the Luton- Dunstable Busway). The Flood Storage Area (FSA) will consist of an earth embankment designed to hold water upstream at times of heavy rainfall. As part of this, the project will re-align and re-naturalise the Houghton Brook to improve wildlife and recreational value of the river corridor, and form part of the green infrastructure link between Houghton Regis and Luton, benefitting both local communities. The FSA’s direct benefits will be largely environmental through flood protection, however there will be indirect benefits linked to SEMLEP priorities through removing the risk of flooding at six strategic housing sites in Luton, alongside the protection of commercial infrastructure and homes across the Luton area, including the town centre. Assessor Findings

This project is recommended for LGF.

In December, following the initial appraisals, we recommended that the Houghton Brook Flood Storage Area was suitable for LGF, subject to due-diligence. This project was not considered at SEMLEP’s May or July Boards due to delays with the applicant securing a land agreement with a third-party landowner. The applicant has since confirmed an approach for mitigating these risks, which draws on their statutory powers. The applicant will commit to implementing its statutory powers to authorise entry in January 2020 if a land agreement is not secured within the required timescales. This would still allow delivery by November 2020, within the timescales for LGF. The applicant is expecting to hear a decision on the planning permission and land agreement in September, so a confirmed way forward should be in place for the SEMLEP Board meeting in September. The applicant has also reviewed its approach for considering dependent development, which is based on an independent assessment of the ‘dynamic benefits’ of the investment on businesses in Luton town centre. The case for the project facilitating investment in Luton town centre is strengthened by a letter of support from the Director of Place and Infrastructure at Luton Borough Council. While the assessment is undertaken at a high level, and there are some questions over the attribution of impacts, the assessors are confident that this represents a proportionate approach. The applicant demonstrates that the flood protection provided by the FSA will enable increased investment in Luton town centre, and, given the level of LGF requested, the investment is likely to deliver good value for money. However, it is important for SEMLEP to recognise that these are indirect benefits and will fall outside of the scope of this project. In addition to the dynamics impacts assessment, a traditional valuation of flood mitigation benefits on existing premises demonstrates that the scheme will deliver value for money when considered on this basis. The economic value of the reduced flood risk is estimated at £35 million and compares to a combined public sector investment of £6.1 million.

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LGF 2018: Due Diligence Assessments

SEMLEP LGF 2018: Due-Diligence Summary

Project Details Project Name Houghton Brook Flood Storage Area Local Authority Luton Project Summary • To build a flood storage area to mitigate future flooding in Luton. This will protect 643 residential and non-residential properties along the Houghton Brook and River Lea, infrastructure and access routes in Luton (A6 and the Luton-Dunstable Busway). The FSA will consist of an earth embankment designed to hold water upstream at times of rainfall. As part of this, the project will re-align and re-naturalise the Houghton Brook to improve wildlife and recreational value of the river corridor. • This project will provide environmental protection benefits, whilst also aligning with SEMLEP objectives, as it will protect major commercial infrastructure from flooding. This includes major roads (i.e. A6, Bedford Road and Toddington Road); the Luton Dunstable Guided Busway; and access to Leagrave and Luton station. Six sites in the Luton Strategic Housing Land Availability Assessment will benefit from reduced flood risk, enabling the full capacity of these sites to be realised as they currently all have flood risk listed as a planning constraint. • The land agreement and achieving planning permission are yet to be secured. The outcome of the planning application is expected in September. Planning permission has been delayed as the applicant had to provide updated information and is currently awaiting the outcome. It the land agreement is not secured; the applicant is able to use powers of entry as the Environment Agency in order to construct the scheme. The applicant has provided a timetable for this and examples of where they have used this statutory power successfully. • A letter of support from a Director of Place and Infrastructure at Luton Borough Council has been provided by the applicant. Project Pillar Cross Cutting Themes Start and End Dates March 2020- November 2020 Funding Requirements £1,000,000 Proportion of match Confirmed: funding: LBC £230,000 • Other Public Sector Central Government £1,780,000 • Private Sector Thames Regional Flood and Coastal Committee £3,000,000 82% match funded

Quantified Project Impacts GVA impact of £53.43m over the next 10 years through flood mitigation impact. £35 million in economic benefits associated with the reduction in flood risk for 643 residential and commercial properties.

This project makes significant flood mitigation impacts, and although less direct, makes a contribution to wider SEMLEP priorities through enabling the development of housing and maximisation of commercial sites within the Luton area.

Value for Money / BCR 4.26 BCR (considering the flood mitigation benefits only and total public sector investment).

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LGF 2018: Due Diligence Assessments

Refer to the Assessment Framework for detailed scoring criteria.

Appraisal Scores & Summary Criteria Score Comments

Strategic Alignment Alignment of the Impact 4 • The application highlights the objective of Proposal to LEP attracting increased private sector investment to Objectives grow businesses and jobs in SEMLEPs Strategic Does the project make Economic Plan (SEP), and links that to the an active contribution to protection of infrastructure that is important to SEMLEP’s Seven business continuity and service provision within Priorities. Luton. Direct benefit to over 200 businesses is stated, located across the Borough of Luton. • The project will also assist in protecting existing major commercial infrastructure, such as key roads, a bus way and Luton and Leagrave train station. • The application outlines how the project will indirectly benefit the town centre, supporting its regeneration and associated strategic allocations. The application demonstrates that 6 sites in the Luton Strategic Housing Land Availability Assessment will benefit from reduced flood risk. All of these sites currently have flood risk listed as a planning constraint, so the FSA may enable the development of these sites to full capacity. • Although the project primarily creates environmental flood protection benefits, the application provides strong links with the wider LEP objectives that will be delivered indirectly, through enabling the development of new homes and protecting existing businesses and infrastructure. Evidence 4 • The application identifies that businesses, homes and infrastructure that will be protected by the FSA and the number of homes and square feet of commercial space that will be enabled. Combined 4 Contribution to the UK Impact 4 • The application identifies how the FSA will Industrial Strategy enable new homes and commercial space which will have significant impact on productivity, as highlighted in the UK Industrial Strategy Paper (infrastructure upgrades, business environment and places). This is through the project being a piece of enabling infrastructure which will support development of other infrastructure and reduced flood risk to businesses. Evidence 4 • The application provides evidence of how the FSA would protect existing businesses and commercial infrastructure. Combined 4 Impact 4 • Impacts are stated clearly against SEMLEP Contribution to the priorities: Local Industrial • Protection of 200 existing businesses

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LGF 2018: Due Diligence Assessments

Strategy and emerging • The project will protect 6 sites in the Luton SEMLEP priorities Strategic Housing Land Availability Assessment that will benefit from reduced flood risk, enabling the full development of these sites, as flood risk is currently a planning constraint on all 6 sites.

Evidence 4 • The extent to which the development of sites will be enabled, and businesses protected is adequately demonstrated. Combined 4 Contribution to the Impact 4 • The application makes the case for enabling the Oxford Cambridge development of 6 housing sites in Luton at full Corridor capacity. Evidence 4 • As above- this is adequately demonstrated. Combined 4 Equality and Diversity Evidence 4 • The application evidences how the project will The applicant has protect key infrastructure in a relatively deprived considered any part of the UK, as well as benefitting Wardown equality or diversity Park which is home to many cultural and local issues relating to the festivals for minority communities in particular. project (see response to Q5.4) Combined 4 Strategic Contribution: Average 4.0 Overall Comments: Combined Score of • The primary benefits of the project are combined environmental through flood protection; however scores the application demonstrates how that indirectly, above the project aligns with SEMLEP priorities through enabling the development of six prioritised housing sites to full capacity, as well as protecting existing infrastructure, homes and jobs.

Assessment of Need / Demand & Economic Contribution Evidence of Need / Impact 4 • The extent of homes, businesses and Demand infrastructure that can be protected from flooding Evidence of which with an FSA is highlighted strongly in the groups require the application. investment and scale of Evidence 4 • The application provides evidence of Luton’s potential take up flooding history and the properties and infrastructure that were affected. It also highlights the increasing flood risk as a result of climate change. Combined 4 Evidence of Market Evidence 5 • The market failure is based around the 2011 Failure change in legislation for government funded Demonstrate why the flooding projects. Now they are only partially project cannot proceed funded by central Government. without public sector • A high number of small organisations and funding. individual residents will benefit from the project, Refer to the SEMLEP therefore making private sector funding difficult. overview of Market Public goods criteria explained substantially as Failures fitting for this project. Options Assessment Evidence 5 • A detailed options assessment is provided, which Demonstrate that thoroughly considers five options and the alternative options have reasons for discounting the alternatives.

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LGF 2018: Due Diligence Assessments been considered and the proposed option is the most appropriate use of public funding. Direct Economic Impact 4 • Present value of £35.54 million is calculated of Impacts flood value damage savings with benefits for 643 Quantified direct impacts existing residential and commercial properties, specified in the pro- alongside infrastructure and public open space. forma • Although the project does deliver significant direct impacts related to flood protection, the Assessment of unlocking of homes and business investment ‘reasonable’, ‘strong’ and (key priorities for SEMLEP) is an indirect wider ‘substantial’ will be impact rather than direct impact. This is now relative to other bids recognised in the application. received. Evidence 4 • The economic impact claims are substantiated and calculated in line with HM Treasury Green Book Guidance. Combined 4

Wider Impacts Impact 4 • GVA value of dynamic impacts up to £54.43m Additional wider benefits over 10 years. This is through supporting the associated with the local economy through a reduction in business investment disruption and unlocking investment to deliver jobs. Assessment of • Enabling 6 strategic housing sites in Luton to be ‘reasonable’, ‘strong’ and developed to full capacity. Currently all 6 sites ‘substantial’ will be have flood risk listed as a planning constraint. relative to other bids • Environmental wider impacts are stated, as well received. as economic impacts through supporting an annual Carnival which brings revenue to Luton. • Social health and well-being benefits through physical and mental health improvements, as a forgotten cost of flooding. This is quantified at £2m. • The potential for wider benefits is strengthened by a letter of support from LBC’s Corporate Director of Place and Infrastructure. Evidence 4 • The high-level GVA assessment has been applied using the AECOM LEVI Tool, it is properly evidenced. • There are some questions over the attribution of the LGF investment to the total level of investment identified, however the benefits outlined above are dependent on an additional 43 jobs being sustained over 10 years. This is 10% of the total level of employment on site benefiting from flood mitigation and can decrease substantially before the VfM of this scheme (based on wider impacts alone) will be at risk. • In addition, the assessors own estimate indicates that a modest increase in housing delivery within the flood mitigation area could ensure good value for money. Given the potential to build out allocated sites in Luton town centre more efficiently due to the removal of the need to

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LGF 2018: Due Diligence Assessments

provide onsite flood mitigation, this also strengthens the case for wider benefits.

Combined 4

Value for Money: Value Evidence 4 • Rationale for value of LGF requested is clearly of LGF Requested evidenced. Value for Money: BCR Impact 4 • Benefit Cost ratio of 4.26 based on total public Ratio of benefits to sector investment. public investment • This does not consider the additional GVA impacts associated with the potential for Impact assessment is enhanced investment in Luton town centre. based on BCR reported Evidence 5 • This is fully evidenced, in line with the Flood and by applicant. Coastal Erosion Risk Management Appraisal Guidance, in line with Treasury Green Book and Evidence assessment Defra’s policy statement. Assessment considers will consider the in detail optimism bias and appropriate sensitivity appropriateness of the tests. assumptions used. Combined 4

BCR to be considered for (i) SEMLEP / LGF contribution and (ii) total public cost. Private Sector Impact 1 • No private sector funding achieved- this is stated Leverage in the application due to the fact that the flood Proportion of private protection will benefit a high number (circa 200) sector funding of generally small, local business. Need/Demand & Average 3.9 Overall Comments Economic of • The application strongly makes the case for need Contribution: Average combined and market failure. Score scores • A detailed options assessment is provided. above • A significant proportion of the impact is focused around protecting existing homes, businesses and infrastructure and environmental benefits through flood protection. • However the applicant makes a strong case around potential wider benefits which directly align to SEMEP’s objectives.

Deliverability Evidence 4 • Match funding information provided is detailed, and the £1m requested from SEMLEP is the only Project Funding remaining funding gap. Details of match funding • Funding from the Department of Education is allocated and subject to a legal agreement. • There is no scalability of the project. Evidence 4 • The project plan provided is detailed and an updated cost plan has been provided. Project Costs Detailed project costs • The implementation of the capital investment has been rephrased to reflect the delays associated with securing the land agreement. Risk Assessment and Impact 4 • The Environment Agency has experience Mitigation delivering projects of the same nature, and the Consideration of project application provides detail on comparable delivery risks, given projects.

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LGF 2018: Due Diligence Assessments delivery timescales • A full risk register is provided. Planning including: permission and the land agreement have not - Funding availability been secured since the original application. - Planning consents Although this remains an outstanding risk, it is - Design and considered that the applicant has mitigated these feasibility risks to an acceptable extent, and due to the assessments applicant’s position as the Environment Agency - Additional risks they are able to secure the land through tried and tested statutory powers, if required. • The applicant submitted their planning application to Central Bedfordshire Council (CBC) in September 2018. CBC raised concerns that the construction of the scheme may comprise the ability of the developers (Houghton Regis Management Committee, HRMC) to meet their obligations to provide for leisure and amenity space in line with the agreed masterplan for the site. The EA modified their embankment, following discussions with CBC, Sports England and HMRC and have a letter of support from CBC. They are awaiting the outcome, which is expected in September. The timescales provided give reassurance that if planning is not granted this month, there is still adequate time in the programme to deliver the project. • Heads of Terms have been drafted for the land agreement and are in discussions with HMRC following the embankment re-alignment. The applicant must have a signed legal agreement with HMRC by November 2019 so as not to delay the Programme. If they are not able to secure a land agreement with HMRC, the Environment Agency have powers to carry out their statutory power to authorise entry. Examples have been provided where this power has been used successfully recently. Project Management Evidence 4 • Detailed project governance structure and Inclusion of a project project management plan provided and looks management plan robust. Evidence 4 • Project milestones are clearly set out. The applicant has delayed the main phase of Project Timescales construction to March 2020, due to the delays in The nature and scale of securing planning permission and the land proposed activity in light agreement. This programme seems realistic and of LGF timescales. would allow for the money to be spent within SEMLEP timescales. The length of build is from 8-9 months: March 2020 to November 2020. Evidence 5 • No state aid concerns with the proposed activity State Aid which involves a statutory body undertaking its statutory duties. Deliverability: Average Average 4.2 Overall Comments Score of • In terms of funding, costs and project combined management the applicant scores strongly. scores Although planning permission and the land above agreement being secured remain outstanding risks, the levels of mitigation by the applicant are deemed acceptable, given the Environment Agency’s statutory powers.

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LGF 2018: Due Diligence Assessments

Sum of 12.0 Overall Comments the • The project’s primary strategic alignment and average benefits delivered are environmental, through scores for flood protection. However, this aligns more each widely with SEMLEP priorities, as indirectly the category flood protection will protect existing commercial infrastructure and homes, as well as enable six housing sites in Luton to be developed to full Total Score capacity. • Since the initial appraisal, securing planning permission and the land agreement have not been resolved, however sufficient mitigation procedures are in place. The applicant is expecting to hear an outcome on planning and the land agreement in September.

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