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A hydro-mechanical local degradation approach is developed and used to investigate progressive damage and associated flow behaviour in heterogeneous rock. The approach is based on the establishment of an elemental scale hydro-mechanical constitutive model that incorporates simple idealised representations of degradation of strength and stiffness, confining pressure-dependent dilatancy, and deformation-dependent permeability. Through the use of such an idealised elemental behaviour, together with hydro-mechanical heterogeneity at the elemental scale, a finite difference numerical formulation allows both the mechanical and hydraulic behaviour of heterogeneous rocks to be simulated. A series of numerical experiments that replicate laboratory-scale rock specimens have been performed to simulate fracture development and the associated evolution of fluid flow. Two independent statistical distributions are used to represent mechanical and hydraulic heterogeneity, and an uncoupled hydro-mechanical algorithm is used to investigate local variations of permeability induced by mechanical damage, and how these influence macroscopic flow patterns. The model is shown to be capable of reproducing, and allowing visualisation of, a range of hydro-mechanical responses of rock that, until now, have only been monitored in the laboratory.