Her Majesty’s Treasury (HMT) is the guardian of how all appraisal and evaluation is undertaken by the UK government. Its “Green Book” aims to ensure that a consistent approach is adopted by all parts of the public sector. Such is the status of this guidance that it has remained unchanged for 15 years, despite significant advances in economic thinking (including the rise of behavioural economics, and much improved methods for valuing wellbeing and environmental effects) and in the economy of the UK (such as the financial crisis and the Brexit vote). Today the Government collectively, led by HM Treasury, took all these developments into account published a revised version of the Green Book.
Not unexpectedly, much remains unchanged. Most notably, the discount rate used by government (the extent to which future costs and benefits are valued less than costs and benefits realised today), subject to much debate, remains at 3.5%. However, some things have been changed or added, including:
- Much more detail about environmental appraisal stemming from significant advances in how to understand and value the climate and the wider environment, including natural capital
- More emphasis on how to properly monitor and evaluate policies to allow for ongoing learning and, where necessary, adjustments
- Greater focus on distributional impacts, including understanding the impacts at a sub-national level and on particular groups (such as business, or different groups of households)
The added emphasis in these three areas – alongside other changes – reflect Frontier’s experience in recent years. The growing emphasis put on valuing “non-market” outcomes is reflected in our work on climate change and the environment but also in the approach to assessing investment in health and wellbeing. The reporting framework and evaluation being undertaken to ensure the Industrial Strategy delivers genuine benefits reflects the emphasis on ongoing monitoring, and we continue to support the government’s understanding of key investments such as our ongoing evaluation of a number of Catapult Centres. The increased desire to collect evidence directly from households and business to inform local and regional analysis underpins the need to understand the detailed picture alongside the big picture, and the importance of understanding regional impacts reflects recent work we have done on the Northern Powerhouse.
There are also some less high-profile changes in the revised Green Book, including explicit recognition of the role of ethics in deciding which options might be considered, and how to handle projects or policies designed to tackle areas with very long-term implications (such as climate change risks, nuclear waste or immunisation programmes). The new guidance also benefits from advances in economic thinking about productivity effects, including agglomeration and clustering; while it continues to warn against the widespread use of multiplier effects to inflate benefit estimates.
Frontier advises public and private clients about best practice in evaluation and appraisal and how to ensure the results of that best practice are translated into policy decisions.
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