Alongside the Spending Review, this week saw the publication of a review into the Treasury’s Green Book – the guidance the Treasury uses to appraise spending decisions and determine whether a project offers value for money. It comes in response to concerns from a chorus led by England’s metro mayors that the way projects are assessed makes decision-making biased against regions outside London and the South East.
The Spending Review was full of announcements of investment in infrastructure across the rest of the country suggesting that – as I argued at a Centre for Cities event last month – political decision-making rather than technical issues around the Green Book are what count most. As the Treasury itself says: “The review has not found conclusive evidence that the methodology set out in the Green Book is itself biased towards certain regions.” Nevertheless some useful and interesting changes are on the horizon.
One is what they call a need to focus on ‘place-based objectives’. In other words, focusing on what a place needs in the round. This can lead to the realisation that if several different types of investment are required to create fundamental change in an area, then these various investments need to be considered together. As the Treasury put it: “the benefits of different projects in a place, such as transport and housing, are often mutually reinforcing and greater than the sum of their parts. Appraisals can sometimes neglect the important interactions that exist between these different projects.”
Another tweak is a promise of greater clarity on how to assess a project that might have transformational impacts over the long-term, but that straightforward cost-benefit analysis is poor at assessing. This was something FGF argued for in our first Mission Critical paper alongside several reforms to embed greater long-term thinking into policy appraisal and investment decisions – essential for delivering the government’s five missions.
The Treasury also commits to an independent review of the discount rate, which is used to convert future costs and benefits into present values. This is wise given it has not been reviewed for some time, but it is unlikely that a much lower discount will emerge (which some might welcome as it would favour projects where the benefits don’t emerge for a while).
The benefit-cost ratio (BCR) has also come in for attack, not least because it is often felt to be the crucial determining factor in decision-making. It is sensible that the Treasury makes clear that having a BCR below 1 does not necessarily rule out an option – not least if its ‘hard to measure’ benefits look to be large. However, care needs to be taken: value for money must still matter. You can sense the Treasury’s nervousness here: “These changes do not mean that proposals with ‘low’ BCRs, or which have BCRs that are lower than would be typical for that type of proposal, should avoid rigorous scrutiny. Neither do these changes imply that evidence and analysis do not matter.”
There is also a commitment to make the guidance on how to use the Green Book simpler so that it is comprehensible to those across the system who need to use it – a very welcome change indeed. As the Treasury points out: “The Green Book itself is 148 pages long. It is accompanied by detailed guidance on developing project and programme business cases, which are both more than 100 pages each. There are also thousands of pages of supplementary guidance on a variety of appraisal topics.” Indeed!
Overall, some steps in the right direction. But it’s what comes next that matters: how officials – and, vitally, politicians – in Whitehall departments and city halls now apply these revised rules in practice. The political will to drive investment out beyond London and the South East will ultimately count for more than a change or revision here or there.
At this stage, Keir Starmer’s government looks to be genuinely committed to making sure we have good investment all over the country. Sceptics will point out we’ve been here before, with Boris Johnson’s administration extolling a ‘levelling up’ agenda that never really materialised. So it’s in the shift from ambition to action that we’ll see how serious this new government really is about regional regeneration.
