Business owners and residents have slammed a controversial plan to introduce a "flood tax" to pay for new defences.

The Government yesterday announced a three-month consultation on the way flood defence work is funded.

The most controversial option would be a flood levy on people in at-risk areas, such as Chichester, Lewes and Uckfield.

Floods minister Elliot Morley said Westminster would continue to foot the bulk of the bill.

But he is reviewing the way additional funding, making up around 20 per cent of the total, was provided.

He said there were two sides to the argument over whether people who have suffered flooding should be hit in the pocket.

He added: "Some people argue the cost should be spread across a whole region because it lowers the overall charge.

"But others argue those people who are most at risk will get the main benefit and maybe they ought to pay the bulk of the contribution. That is why we are having this consultation."

Those who have barely recovered from the devastation of the October 2000 floods today rejected the proposal.

Rosemary Hodge, president of Chichester Chamber of Commerce and Industry, said: "I think the idea of a flood tax for at-risk homeowners and businesses is an outrageous idea.

"Why should people who are affected pay more? The water starts in the hills, travels in the rivers and floods the lower areas."

She said the idea would penalise people for living where they did.

David Clark, co-owner of jeweller's WE Clark & Son in Cliffe High Street, Lewes, said: "I would throw this suggestion back in the Government's face.

"It's hard enough to sustain a business with all the taxes we currently pay, let alone another one."

Adrian Corbin, president of Uckfield Chamber of Commerce, has met Prime Minister Tony Blair and Mr Morley to lobby for better flood defences.

He said their response had been "pathetic" and condemned the idea of a flood tax as "lunacy".

He suggested the Government should import the American model of a flood insurance scheme primarily for businesses.

Coun Martha Whittle, a Lib Dem on Uckfield Town and Wealden District Councils, said: "Many of the people who were affected by the floods would not have known they were living in at-risk areas as we were told these things happen once every blue moon."

Peter Jones, Conservative leader of East Sussex County Council, said funding was a national responsibility.

At present, the burden is shared by everybody in the region through a charge which is added to the council tax bill.

It is levied by the Regional Flood Defence Committee, which this year has to raise 35 per cent of the £9.1 million to be spent in Sussex.

This committee would be replaced by a Regional Customer Body, which would receive money from the Government.

It would then have one of three options for raising any extra cash for defence work - a tax on at-risk homeowners, one-off charges on developments on flood plains, or continuing to levy a region-wide charge.