Jeff Salway: Flood victims face insurance nightmare

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HOME insurance is one of those financial products that’s taken for granted; it’s essential but it’s easily available and usually affordable. Where would homeowners be without it?

Many are about to find out, thanks to political incompetence and negligence bordering on recklessness. Home insurance could soon be priced out of reach in flood-risk areas in Scotland, leaving thousands of homes uninsured and unsellable.

It’s all because of a little known agreement between the government and insurers. Under the Statement of Principles, the government agrees to invest in flood defences in exchange for the insurance industry’s guarantee of cover for flood-hit homes.

Except it won’t be little known for much longer, because its expiration in June could prove disastrous for anyone hit by floods or at risk of flooding.

The government and insurers started talking last year about replacing or extending the statement, but no agreement has been reached. The result is that we face a free market in home insurance. That means those already affected by floods being quoted massively increased premiums when they come to renew. For some that will make it unaffordable. If they can’t obtain insurance they’ll be lucky to secure mortgage finance. Even if they can the cost of that cover will make it hard to sell their home.

It’s five years since an expiry date was stamped on the Statement of Principles, but with weeks to go we’re still waiting for action. It’s said that the government is blocking the proposed alternatives because of the cost; instead the price will be paid by any household unfortunate enough to be in the wrong place.

Missing the target

WITH universal credit now underway and the latest spending cuts taking effect last month, there’s a sense of the government finding another convenient distraction while it fails to address the really expensive problems. For all its tough talk it has little appetite for a crackdown on tax avoidance or evasion.

Forget the General Anti-Abuse Rule (GAAR) taking effect this year. It is far too narrow to make a real dent in tax avoidance or evasion. HMRC estimates the GAAR will raise about £60 million in 2014-15. Sounds impressive, until you remember that Richard Murphy of Tax Research puts the annual cost of tax avoidance at £25 billion. That doesn’t include tax evasion, which Murphy estimates at more than £70bn.

In contrast, benefit fraud is below 1 per cent, according to the government’s own figures, amounting to £1.2bn.

Yet here we are, debating the merits of universal benefits once again. Because for all the billions that could be saved for the taxpayer by effective tackling of tax avoidance and evasion, it doesn’t serve the government’s political needs in quite the same way.