Guidance

Capital grant eligible investment

Published 3 March 2026

Applies to England

1. Introduction

1.1 Audience

All risk management authorities (RMAs), including the Environment Agency:

• asset managers
• finance officers
• project teams
• project assurers
• approving officers

1.2 What this document is about

Government’s flood and coastal erosion risk management (FCERM) funding policy was implemented from April 2026. It separates grant funding between:

• existing projects and assets
• new or improved projects and assets

This document explains what these terms mean. RMAs can subsequently decide how their proposed asset management activities, or planned FCERM measures, are eligible for capital FCERM grant-in-aid (GiA) under the funding policy.

This document also explains the basis for compliance with the International Accounting Standard. It defines how RMAs can decide which FCERM activities are eligible for funding from FCERM GiA.

Use this document when confirming whether your proposed asset management activities or your planned FCERM measures may be eligible for FCERM GiA.

1.3 Contacts for feedback and queries

If you have any comments on the content of this guidance, you can email FCRM_Investment@environment-agency.gov.uk.

2. Describing asset management and risk management terms

2.1 Context

In the context of FCERM activities, this guidance describes what the funding policy means by:

• refurbishing existing assets - see section 4
• new or improved projects and assets - see sections 5 and 6

The descriptions allow the consistent application of funding policy for all RMAs. They help bridge the gap between asset management terms, accountancy terms and the terms used in investment decision making.

Detailed descriptions are in the sections below. You can also download a summary.

While the descriptions are specifically for assets performing an FCERM function, regardless of the source of risk, they may also be helpful when funding other asset types which are not eligible for FCERM GiA.

Sources of risk associated with FCERM assets include:

• fluvial and tidal rivers
• the sea
• eroding coastlines
• surface water
• groundwater
• reservoirs

All descriptions may not apply to every type of FCERM measure. For example, actions identified in a Reservoirs Act 1975 section 10 inspection report can only be funded if it is an Environment Agency owned reservoir as part of their statutory obligations.

Asset maintenance activities, asset refurbishment activities and asset replacement activities currently fall outside this guidance for:

• property flood resilience (PFR)
• natural flood management (NFM)
• sustainable drainage systems (SuDS)

They are excluded from the relevant descriptions.

2.2 Assets, asset elements, and asset components

In this document an asset is a tangible fixed asset, such as land, a building or equipment, which has an economic value which depreciates over time.

The Environment Agency recognises many different asset types. These are defined in a Data Requirements Library (DRL) and information related to them is stored in an asset inventory system (AIMS OM).

There are several different asset categories, such as:

• defences
• structures
• mechanical and electrical installations
• instruments
• channels

Asset complexes include groups of assets on a single site, such as a pumping station.

Individual assets and their asset elements or asset components usually have different expected useful lives. These depend on:

• their role in securing the design performance of the overall asset, or structure
• the environment in which they operate

Asset design performance may decline over time with use. Asset interventions manage this decline, so the asset continues to operate at, or above, its intended design, or target, performance until the end of its useful life.

The standard of service (SoS) describes the attributes and services associated with managing flooding and coastal erosion risks and which the design performance must secure over time.

The standard of protection (SoP) describes the level of flood risk that an asset is designed to withstand. For example, an asset could be built to protect against a flood with a 1% annual probability.

Asset condition is used as an indicator for asset performance. The Environment Agency is transitioning to asset health as an alternative, more informed, indicator.

3. Complying with the International Accounting Standard

This document complies with the International Accounting Standard 16, Property, Plant and Equipment (as adopted by the UK Endorsement Board).

It describes eligibility for FCERM GiA from the capital departmental expenditure limit (CDEL) and from the resource departmental expenditure limit (RDEL). This is provided to the Environment Agency by the Department for Environment, Food and Rural Affairs (Defra).

3.1 Using capital and resource funding for FCERM activities

CDEL FCERM GiA is directed towards activities which meet the definitions for:

• asset refurbishment (see section 3)
• asset replacement (see section 4)
• new assets changing the approach to risk management (see section 5)

RDEL FCERM GiA is directed towards FCERM activities which meet the definitions for:

• asset maintenance – only for assets owned and operated by the Environment Agency
• investigations and studies which inform the development of CDEL FCERM GiA eligible business cases

RMAs, other than the Environment Agency, fund their asset maintenance activities using their own resources.

More information on the criteria for activities which are eligible for CDEL and RDEL FCERM GiA is provided below. Eligibility for FCERM GiA is not a guarantee that a funding allocation will be made. The allocation of FCERM GiA is subject to prioritisation.

3.2 The Accounting Standard

The Accounting Standard provides guidance which helps interpret when initial costs and subsequent costs, including those which extend the useful life of an asset, can qualify as a capital expense.

Investing in the replacement of an asset and the acquisition of a new asset which secures economic value is an initial cost and normally qualifies as a capital expense.

Asset refurbishment is a subsequent cost.

Subsequent costs are capitalised when they:

• enhance the future economic benefits of the asset beyond its original performance standard
• replace identifiable components of the asset
• are major interventions required for the continued operation of the asset

The useful life of the asset is the period over which the:

• asset is available for use
• asset will realise benefits

Subsequent expenditure must create future economic value and have a reliably measured cost. As a result, subsequent costs which qualify as a capital expense are for securing the on-going utility, or flow of benefits, of an asset, which may include extending its useful life.

Day-to-day servicing costs, which would include maintenance and repairs, are considered resource expenses.

4. Asset refurbishment

4.1 Introduction

Government’s FCERM funding policy (2025) makes the refurbishment of FCERM assets eligible for full funding from FCERM GiA. Within the context of this eligibility, the definition of asset refurbishment achieves a consistent policy application.

Asset refurbishment is only for asset elements and asset components. All RMAs must show that an asset benefiting from refurbishment reasonably includes asset elements or asset components and these are described in an appropriate:

• record
• catalogue
• register

During the lifecycle of an asset, some asset elements and asset components may need refurbishing. This could affect most FCERM asset types.

4.2 The definition and qualifying criteria for asset refurbishment

The definition of asset refurbishment

Asset refurbishment

Activities mitigating for loss in asset design performance which are both:

• not manageable with asset maintenance activities
• significant and permanent if not addressed

AIMS and PAFS summary - substantially renew or replace one or more asset elements or components in an existing FCERM asset (REF)

The criteria for asset refurbishment

When qualifying as asset refurbishment, proposed activities must be shown not to be:

• asset maintenance - removes qualification as asset refurbishment
• asset replacement - if there is no consensus following assessment and assurance, the presumption will be that the activity represents asset replacement - this approach ensures that funding policy intentions are not contradicted (see section 4.3)

All the following criteria must be met for an activity to qualify as asset refurbishment:

• the asset refurbishment activity has the primary purpose of managing flooding and coastal erosion risks
• the cost is greater than £5,000, excluding VAT
• the benefits from the intervention will last longer than one year
• the activity represents a more substantial intervention than a maintenance activity
• an asset is returned to its design performance by replacing, or substantially renewing, one or more asset elements or asset components, unless the activities are significant enough to be considered asset replacement or the asset has reasonably exceeded its previously expected useful life (see section 4)
• the whole life cumulative cost does not exceed the cost of replacing the asset, unless agreed with the Environment Agency in advance and by exception
• the activity is planned and undertaken in accordance with the asset’s expected asset management regime, where the benefits of the asset refurbishment activity are measurable over a longer period - this may include emergency works for reinstating asset performance (see Section 4.4)
• the activity secures the realisation of significant on-going benefits from the asset during its useful life

The outcomes from asset refurbishment

The outcomes from asset refurbishment are the:

• realisation of benefits directly attributable to the completed asset refurbishment activity
• benefits of the initial FCERM investment continue being realised, ensuring the agreed SoS is met and can be relied on by the benefiting communities
• asset continues operating at the expected design performance until the next refurbishment or until the end of its useful life

Acceptable loss in design performance

Where an asset experiences a loss in design performance, but the level of performance and the new SoS can be tolerated, then asset refurbishment activities may not be needed. This is because the asset continues to deliver good value for money, including through its on-going benefits, while securing compliance with environmental and other legal regulations.

Further losses in design performance resulting in an unacceptable SoS, or the inefficient use of public funds, will be assessed on their merits, and any related activities may subsequently qualify for FCERM GiA either as:

• asset refurbishment
• asset replacement
• a new asset changing the approach to risk management

Beach nourishment and subsequent material redistribution

Beach nourishment (also referred to as beach recharge) is the placement of a significant volume of suitable material onto a beach system. The purpose is to sustain the SoP delivered by a coastal FCERM asset. Where such placement is required to prevent an unacceptable reduction in the performance of the asset, and where the intervention is not manageable through routine maintenance activities, it shall be classified as asset refurbishment.

In circumstances where the material placed through nourishment requires subsequent redistribution along the beach frontage to maintain the intended SoP, these interventions shall also be treated as asset refurbishment. Such circumstances also need to meet the definition and qualifying criteria for refurbishment activities and constitute substantial interventions necessary to maintain design performance.

Where both nourishment and subsequent material redistribution form part of the intervention programme, the benefits attributable to each activity must be assessed and apportioned appropriately. Benefits must not be double counted and should reflect the distinct contribution each activity makes to sustaining the performance and ongoing utility of the asset.

4.3 Business cases for asset refurbishment

Asset refurbishment is justified in a proportionate business case and in line with the Integrated Assurance and Approvals Strategy (IAAS).

Higher value proposals, and those over £20 million in whole life cost, will receive more scrutiny and assurance before the proposal secures approval.

Projects undertaking asset refurbishment for an asset element are eligible for FCERM GiA for the associated activities.

Proposals aiming to refurbish many large asset elements and asset components on the same asset, or within the same complex asset, at the same time will require additional evidence. These proposals will also receive more scrutiny to ensure the proposals do not contradict government’s funding policy intentions (see section 5).

The Environment Agency does not expect projects proposing asset refurbishment activities will require:

• studies or investigations for the replacement
• renewal of asset element or asset components

Other RMAs can make a specific case for support from RDEL FCERM GiA for these activities for their asset refurbishment projects.

The cost of early project development is borne by the RMA.

Section 8 explains the opportunity for exceptions for asset refurbishment, including for refurbishing assets for other Environment Agency functions.

4.4 What does not qualify as asset refurbishment

Asset maintenance activities

Asset maintenance activities do not qualify as asset refurbishment. They include:

• planned maintenance
• unplanned maintenance

Planned maintenance

This is regular, planned and often repeated activities, whether routine or intermittent, which are frequently decided and agreed following asset construction or earlier asset refurbishment (the frequency may change following operational experience, when design performance demonstrates it is appropriate to change, or because technology improves)

It includes activities which help understand, and subsequently secure, on-going design performance such as:

• asset inspections and investigations
• the preventative servicing or repair of asset elements or asset components
• the clearance of objects or other materials, including vegetation, dredged silt and flood carried blockages, obstructing or preventing the normal and efficient operation of the asset

Unplanned maintenance

This is:

• reasonably not a planned maintenance activity
• includes lower cost activities identified through inspections and investigations
• urgent servicing or repair of asset elements or asset components which avoid an unexpected loss in design performance

Asset maintenance activities are for the day-to-day servicing of an asset, so it continues performing, or operating, efficiently and as designed. These activities do not typically have lasting benefits and must be repeated on a more frequent basis than asset refurbishment activities. They are also typically of a significantly lower cost than asset refurbishment activities.

Asset maintenance can include:

• the reasonable purchase and storage of spare parts in readiness for replacement of critical components
• lower cost activities for meeting obligations, including environmental regulations, health and safety regulations, and contractual agreements and which do not meet the definitions and criteria of asset refurbishment (see section 4.2)

When asset refurbishment is no longer appropriate

Asset refurbishment may no longer be appropriate when:

• the asset refurbishment activities are significant enough to represent the replacement of the asset with a substantially new asset
• the asset is nearing the end of its useful life and refurbishment is unlikely to extend its useful life
• the approach to FCERM, or the outcomes required from FCERM measures, have changed significantly so that the asset, or the SoS it provides, are no longer appropriate or required
• on-going investment in asset refurbishment is not economic because the cost of the required activity is more than the cost of replacing the asset or it is disproportionate to the asset’s remaining useful life or the remaining benefits
• asset interventions, whether through asset maintenance or asset refurbishment, cannot sustain the required SoS

An investment appraisal and a new investment decision determines whether a replacement asset or a new approach to FCERM is required.

Urgent, or emergency, works may qualify as asset refurbishment, subject to complying with the:

• definition and criteria in Section 3
• accounting standard requirements in Section 2

These activities make an asset safe or prevent immediate deterioration.

5. New or improved assets – asset replacement

5.1 Introduction

Government’s FCERM funding policy creates an FCERM GiA eligibility for replacement activities for existing FCERM assets by:

• fully funding qualifying costs up to £3 million
• funding a maximum of 90% of the additional qualifying costs over £3 million

Asset replacement refers to the replacement of existing assets with new assets, or substantially new assets, which sustain the SoS, including:

• the reconstruction of assets
• reprofiling existing embankments when this activity is not a refurbishment activity
• building new assets which serve the same beneficiaries and achieve the same SoS but are in a new location away from the existing assets (this is different from refurbishing existing asset elements or asset components)

This excludes PFR, NFM and SuDS measures which currently are outside this guidance.

Enabling works required for, and directly attributable to, building replacement assets may be eligible for FCERM GiA, classified according to the definitions in the Accounting Standard (see section 3).

The definitions and criteria below help RMAs determine whether their investment proposals are eligible for FCERM GiA for asset replacement. They do not change criteria for prioritising the allocation of FCERM GiA nor the criteria for the proportionate appraisal including a reasonable range of FCERM options.

5.2 Asset replacement

The definition of asset replacement:

Asset replacement

Activities replacing an existing asset which is at the end of its useful life with another asset serving the same community, even when not in the same location or using the same measures, and which:

• sustains the SoS of the replaced asset
• continues the design performance of the replaced asset on an equivalent basis

AIMS and PAFS summary - replace an existing FCERM asset that is at the end of its life with another asset which sustains the SoS and the design performance on an equivalent basis (REP)

Criteria for asset replacement

All the following criteria must be met for an activity to qualify as asset replacement:

• replaced asset must have the primary purpose of managing flooding and coastal erosion risks
• the local need for on-going risk management measures can be demonstrated
• the proposed activities are not asset refurbishment activities or asset maintenance activities
• the current asset is demonstrably nearing the end of its original expected asset life - it can no longer perform as designed to achieve on-going risk reduction to the required SoS , asset refurbishment activities are no longer sufficient and most of the asset, including any civil engineered structure, is due for replacement or renewal
• a proportionate appraisal includes a range of options for sustaining the SoS and for changing the SoP
• the proposed FCERM asset does not change the SoS, the SoP or accommodate for future change in risk

The outcomes from asset replacement

The outcomes from asset replacement are the:

• replaced assets that are new and return a design performance and an SoS equivalent to the old assets
• outcomes and benefits currently experienced by the community are sustained for a define time, taking account of value for money

6. New, or improved, assets – changing risk management

6.1 Introduction

Government’s FCERM funding policy creates an eligibility for FCERM GiA for new assets as well as improvements to existing assets that change the approach to risk management by:

• fully funding qualifying costs up to £3 million
• funding a maximum of 90% of the additional qualifying costs over £3 million

New assets changing the approach to risk management refers to new assets which:

• increase or reduce the SoP in a community
• are in a location not previously served by any other FCERM assets
• are additional to existing assets and increase the SoP for a community already benefiting from existing FCERM assets which will continue providing an on-going service
• replace the current SoP with new measures which are more resilient in a changing climate

This includes PFR, NFM and SuDS measures.

Enabling works required for, and directly attributable to, building new assets may be eligible for FCERM GiA, classified according to the definitions in the accounting standards (see section 3).

The definitions and criteria below help RMAs determine whether their investment proposals are eligible for FCERM GiA and under which categories those investment proposals are promoted. They do not change criteria for prioritising the allocation of FCERM GiA nor the criteria for the proportionate appraisal including a reasonable range of FCERM options.

6.2 New assets changing the approach to risk management

The definition of new assets changing the approach to risk management:

New assets changing the approach to risk management

Activities creating a new asset where no assets currently exist and activities changing an existing asset which secures a change by:

• reducing the current SoP
• increasing the current SoP

Activities creating a new asset which does not change the SoP but takes a different approach to risk management using different types of measures

AIMS and PAFS summary - create a new flood and coastal erosion risk management asset, or change an existing approach to risk management in an area already with assets (DEF)

Criteria for new assets changing the approach to risk management

The following criteria must be met for an activity to qualify as new assets changing the approach to risk management:

• the new asset must have the primary purpose of managing flooding and coastal erosion risks
• the local need for risk management measures can be demonstrated because there are no existing FCERM assets, or the current FCERM assets are unable to achieve the reasonable risk management expectations of the community due to an insufficient SoP, secure the outcomes and benefits which justify the current high SoP, continue securing the existing SoP in a way which is sustainable in a changing climate
• the proposed activities are not asset refurbishment activities or asset maintenance activities
• a proportionate appraisal includes a range of options for sustaining the SoS, for changing the approach to risk management

The outcomes from changing the approach to risk management

The outcomes from new assets changing the approach to risk management are the:

• new assets return the same SoP or a different SoP to the current risk management assets
• outcomes and benefits currently experienced by the community are either extended, enhanced or reduced for a defined time, taking account of value for money, changes in risk and climate impacts

7. Business cases for new or improved assets

7.1 Justifying eligibility for FCERM GiA

Asset replacement and investment in new assets changing the approach to risk management are justified in:

• a proportionate business case
• line with the IAAS

Higher value proposals receive more scrutiny and assurance before they secure approval for FCERM GiA.

Under the funding policy, FCERM GiA contributes to the management of the risk of economic damages and losses directly due to flooding and coastal erosion, as follows:

• 100% of the eligible, compliant costs up to £3 million when these costs are required for managing the risks from flooding and coastal erosion and for securing the necessary consents, permissions, and approvals
• 90% of the eligible, compliant costs over the £3 million threshold where they are required for managing the risks from flooding and coastal erosion and for securing the necessary consents, permissions, and approvals

The Environment Agency funds reasonable costs for studies and investigations from RDEL FCERM GiA.

The cost of business case development is borne by the RMA.

7.2 New assets which secure benefits wider than FCERM

When a new or improved asset has a purpose which extends beyond FCERM, for example by providing defined benefits for FCERM, for property development, water abstraction, water quality, navigation, or fisheries, FCERM GiA contributes proportionately to the compliant costs for:

• managing the direct risks from the damages and losses from flooding and coastal erosion according to the thresholds in policy
• any incidental outcomes which are required by all parties for securing the necessary consents, permissions, and approvals

8. Moderation and exceptions

8.1 Making exceptions using the moderation process

Moderation is an exceptions process which directs FCERM GiA funding towards legislative compliance, and other activities by exception, at a minimum cost when using the funding policy alone would not address these immediate challenges, either for the FCERM GiA required or in the prioritisation of the interventions.

Typical activities are for asset refurbishment. Moderated activities must comply with the requirements set out in section 3 and section 4.

Moderation is not an appropriate choice for replacing an asset or for changing the approach to risk management in a location.

8.2 Other Environment Agency functions

Other functions of the Environment Agency only may not be funded sufficiently for managing the liabilities associated with their owned and operated assets. By exception, and on a case-by-case basis, FCERM GiA may be used for supporting the refurbishment or replacement of these assets when they:

• are required under legislation for which the Environment Agency is liable
• are within the river and may significantly interrupt river flows when they cannot operate as intended
• have an impact on FCERM activities, particularly during periods of high river levels

8.3 Additional criteria which may influence new or improved assets

Where the existing SoS or SoP cannot be justified from the outcomes and benefits to the public purse, options available to RMAs in a proportionate appraisal include:

• funding the necessary activities from their own supporting income and funding sources
• reducing the SoS and the SoP along with the associated cost of the necessary activities so they can be justified from the public purse