How can national policy objectives be reflected in the Green Book?

The Green Book is guidance issued by HM Treasury on how to appraise policies, programmes and projects. Changing the Green Book is often presented as a solution to deliver on political imperatives, with a current review focusing on the government’s stated aim to ‘level up’ the country.

How does the Green Book work?

The Green Book sets out a framework which is designed to ensure transparent, evidence-based assessment and advice to support Ministers’ decision-making. Most infrastructure proposals are analysed using a business case under the Green Book’s Five Case Model. Specifically, this examines:

1. the strategic case
2. the economic case
3. the commercial case
4. the financial case
5. the management case

This appraisal process should provide a good degree of scrutiny and result in better value-for-money decisions. However, there are concerns that national strategic priorities are not captured within the Green Book guidance, while the methodology sometimes produces suboptimal outcomes.

Reforms to the Green Book methodology and guidance could change what gets built where, who benefits and how they benefit. The current review of the Green Book and a government open to amend it more frequently presents an opportunity for it to better address the long-term challenges that the UK faces.

Meeting the net-zero target

ICE has previously called for the Green Book to better reflect the 2050 net-zero emissions target and prioritise emissions reduction impacts in appraisal and investment decision-making. Without doing so, there is a significant risk that the procurement and delivery of infrastructure projects that align with net-zero will be limited and inhibit the UK’s ability to achieve its 2050 target.

The Green Book was most recently updated in early 2018 – before the net-zero target was enshrined in law. How to best bake in a long-term policy objective like this into project appraisal frameworks is a key question. Could this be done through the existing framework? Does it require supplementary guidance? Or is there a case for expanding the Five Case Model to six with the addition of net zero?

Accounting for social value

The most recent edition of the Green Book fully incorporated the concept of social cost benefit analysis (CBA), expanding its advice on how social value is weighted in the appraisal process.

But there are questions as to how effective this has been. Research into maximising social value, conducted by Useful Projects, found that the Green Book guidance for appraising projects through CBA is not fit for purpose for major long-term infrastructure projects. Infrastructure is an interconnected system of systems that provides the foundation for society. Large scale projects and programmes that have systems-wide impacts could, for example, benefit from supplementary Green Book guidance on how to suitably capture and value social benefits from these projects.

Levelling up

The current review of the Green Book, announced at the 2020 Budget, will consider how ‘the design and use of project appraisal affects the ability of all areas to achieve their economic potential’.

Projects which raise productivity – such as transport infrastructure – tend to estimate gains in percentage terms. Due to London and the South East having higher values of economic activity per person and a larger population, there have been suggestions that the current appraisal process leads to investment channelled into already prosperous parts of the country.

However, there may be more fundamental issues that need addressing rather than reforming the Green Book. Without a clear definition of ‘levelling up’ or a set of metrics to measure the types of outcomes that the government wants to achieve from it, it can be difficult for project promoters to make their case through the appraisal process.

Questions for the consultation

The discussion paper includes a series of consultation questions on the above themes which aim to help inform the development of ICE policy in relation to Green Book reform. ICE is seeking expert opinions on the following questions:

1. How should the Green Book and the appraisal process be reformed to better factor in strategic national objectives?
2. Does the urgency of the net-zero greenhouse gas emissions target warrant the expansion of the Five Case Model to include a sixth net-zero case, or can this effectively be appraised against through the current methodology (e.g. the strategic case or supplementary guidance)?
3. How can the Green Book best account for social value and help achieve wider societal outcomes?
4. What, if any, are the limitations of the Green Book in achieving the government’s aim of ‘levelling up’ the country?
5. How can greater consistency of application of Green Book project appraisal be achieved across government, both local and central?