Levelling up' and revising the Green Book - Where next? June 2020 - Arup
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Arup Perspectives ‘Levelling up’ and revising the Green Book Where next? June 2020
Arup Perspectives Arup Perspectives
‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Contents
Foreword 04
Introduction 06
Revamping the Green Book? 10
Supporting local objectives 12
The role of appraisal guidance in supporting levelling up the economy 14
Improving decision - making 22
Summary and conclusions 24
Contacts 26
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
and deprivation, making the best use of the country’s already happens with Transport for London, Transport
economic (and indeed natural) assets and avoiding Scotland, executive agencies and even departments of
outcomes that are considered to be fundamentally state.
unfair. But crucially, it needs also to avoid policies
that may inadvertently lead to “levelling down” – Finally, and crucially, we conclude that whilst there
Foreword whereby the inequality gap is closed perhaps through are surely areas for improvement in the Green Book
making some cities and regions poorer. Misallocation (that we discuss in some detail), government must
of resources into projects or activities that do not avoid ‘throwing the baby out with the bath water’. We
In December 2019, the new government brought country” problem. This brings with it the complication work, does little for the areas they are intended to argue that the Green Book is (rightly) not designed to
with it a promise to ‘level up’ the economy. Many of the fact that London is many things beyond being help and risks damaging the more productive parts of constrain the policy objectives of elected governments
policy makers, advisors and others are still trying to economically powerful. It is the UK’s largest city (by the economy that would otherwise have grown more or their ministers; the “strategic case” is more than
understand quite what this means in economic terms. a long way); the home of a powerful centralised civil quickly. And as mentioned before, there needs to be a capable of accommodating such matters. The other
But one thing is for sure; the levelling up debate service; the financial and business capital of the UK; fundamental and continuing recognition that inequality four cases of the Green Book aim to provide an
has drawn into focus the long standing and perhaps and the ceremonial and cultural centre of the country. and deprivation within regions should also be tackled. objective framework of the risks, costs and benefits
inevitable tension between attempting to maximise The desire for “levelling up” amongst voters may To this end, the framing of the debate in terms of “them that a particular policy or investment might actually
economic growth at an aggregate (i.e. national) level, therefore be not just about economic disparities but and us” cannot be considered a constructive way to achieve. There is then opportunity for decision-makers
versus responding to a broader set of objectives about frustration with the “remoteness” of decision- achieve desired policy outcomes. to “override” the benefit to cost ratio analysis that
concerned with challenges such as inequality. making along with a sense of being cut off from many is generated. None of this suggests that we should
of the other functions and activities that are performed There are of course many levers that government can not try to perform an objective cost benefit appraisal
There is evidently a desire amongst ministers to shape within the M25. and does reach for to deal with inequality - including that the Green Book provides for. We argue that
and change the distribution of growth: spatially; taxation, revenue expenditure, regulation and public how the Green Book is understood, interpreted and
across sectors; and indeed in terms of the individuals/ On the economic front, there are yet further investment. In the context of the latter, a focus of utilised is something that should be reviewed and
communities who get to benefit from it. It would be complications in that despite its strength, London is the debate has been the framework under which improvements suggested. And of course, there should
naive to suggest that this objective is entirely divorced home to some of the highest levels of deprivation (and government departments make investment decisions be an ongoing desire to try and enhance and improve
from the political factors of who voted where for the inequality) in the UK. And yet it has been making very – the HM Treasury Green Book. At a political level the quality of evidence and guidance provided, plus
elected government. But that is rightly part of the substantial fiscal transfers to fund public services in – from all sides of the political spectrum – there have greater recognition of the limitations of the cost benefit
reality as to how democracies operate and is part of the other parts of the country. Unfairness can be a two-way been calls for fundamental changes to its methodology. approach.
landscape that economists and others must navigate. problem. Exploring that question is the principal focus of this
The potential impact of Brexit and now the Covid-19 paper. Now more than ever, UK government at all levels will
pandemic (which has transformed from a public These complexities should not be seen as reasons need to rely on high quality frameworks to help guide
health crisis into an enormous economic challenge for not pursuing the aim of “levelling up.” The sense Whilst we argue that the Green Book (and indeed other investment and aid the transition of the UK economy
for countries across the world) further complicates of loss associated with worklessness and a lack of government guides such as the Magenta Book dealing into recovery. We believe the Green Book is integral
the levelling up debate. Government is going to wealth creation is still palpable in many places across with project evaluation) are crucial to best practice, we to assisting that process. By all means we should strive
face choices between measures that are designed to our country. Settlements that prided themselves on also maintain that for many areas of expenditure, such to improve how the Green Book is used and the quality
stimulate the most productive regions of the country’s industries - now largely long gone - often struggle as transport, skills, housing and some types of local/ of the guidance and advice that it provides. But that
economy – those that are best placed to get growth to find new economic reasons for being – and the regional infrastructure, decisions would be far better is a very different proposition to saying that it should
going and help to repair the public finances – with (local) resources to invest and maintain the sorts of taken at a local level by locally elected politicians be radically rewritten because it provides answers that
actions aimed at allocating resources to less well-off civic infrastructure that they long for. The emerging and their officers. Ideally, they would be funded and some don’t want to see.
regions. economic evidence (and it is early days) suggests that financed by a more devolved fiscal regime as seen in
the Covid-19 pandemic is once again going to hit more many other mature, western democracies (and indeed
In many ways a desire to “even out” growth in England deprived towns and cities hardest although very few if to a certain extent in the devolved administrations
(and the rest of the United Kingdom) is nothing new. any places are going to escape damage of some sort. in the UK). This would stimulate greater scrutiny
Ever since the decline of manufacturing and other and accountability for the success or otherwise of
heavy industries set in - in the mid twentieth century In tackling the levelling up agenda, all these factors
suggest a nuanced and carefully thought-through the decisions that their politicians make, create a
- successive governments of all political persuasions powerful local incentive for development, provide
have grappled with attempts to shape the pattern of approach is required. Matters such as devolved
decision-making, relocating some government activities long term incentives for building decision-making
economic growth across the UK. Such interventions capacity locally and, we believe, allow better “cross-
have of course achieved mixed results. and fostering a greater sense of inter-dependence
between London and the rest of the UK might all be cutting” or indeed transformative decisions that affect
In the UK, there appears to be a deep-rooted sense policies worth considering in the quest to deal with more than one area of policy or economy. Local
amongst some commentators, the media, academics perceptions as well as the realities of inequality. government (in its various forms) may then in turn Alexander Jan
and think-tanks that economic inequality is more develop locally tailored appraisal frameworks (guided Chief Economist
pronounced than in comparable countries (crucially In the context of economic activity and how decisions by the Green Book and Treasury civil servants) to help
this is dependent on how one measures these things) are made on the allocation of public resources, the inform and improve decision-making. This arguably t: +44 7545 742 003
e: alexander.jan@arup.com
and also that this is a “London versus the rest of the government is rightly concerned about social justice www.arup.com
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Introduction
The HM Treasury Green Book sets out the rules for government decision making. level. A key concern raised in the 2018 edition was What’s working well?
project appraisal, influencing which projects are granted the risk of inappropriate use of multiplier effects –
public funding. It is and has been a key guidance Background to the Green Book often applied throughout the impact of investment The Green Book should rightly be considered a
document over the years in establishing a consistent decisions on supply chains. The concern was that best practice framework for decision-making1. In
The Green Book was first published by HM Treasury Arup’s experience, the Green Book’s influence goes
basis for how projects should be assessed. Not only in the 1970s to provide policy appraisal guidance their application had led to over-inflating of estimated
from an economic point of view determining the value benefits. The emphasis on increased rigour in 2018 well beyond Britain’s shores. It is drawn upon by
to officials throughout the civil service. Its aim was government administrations in other Anglosphere
for money of investments but also enabling scheme to develop transparent, objective, evidence-based amendments was also reflected in guidance stressing
promoters to demonstrate the rationale for investments the importance of focusing on better monitoring and countries such as Australia and New Zealand.
appraisal and evaluation of policy proposals. The Consultancies such as ours refer to it when advising
and how these can be delivered in practice through guidance applies to proposed changes to regulation, evaluation of policy.
its so called “five-case” model covering the strategic, governments all over the world on how to understand
taxation, public spending, and changes to the use of A range of supplementary guidance from Treasury and make the case for investment. Recent Arup
economic, financial, commercial and management existing assets and resources. Over time the Green
dimensions (or ‘cases’) of a project. It is fair to say and from other departments has emerged to be used examples are as varied as Malta, Brazil and the
Book has evolved in line with changing policy goals. in conjunction with the Green Book. These provide Philippines.
that the Treasury Green Book is considered by many As research evidence and experience has mounted,
to be best practice around the world. Countries with further detail on the business case process for projects
it has also been amended to improve the rigour with and programmes, including the detail required in One of the principal strengths of the Green Book is
strong historical ties to the UK, including Australia and which objective analysis is undertaken. Of particular that is provides comprehensive guidance whilst also
New Zealand, have adopted similar approaches when business cases from Strategic Outline Case through
importance are the changes included in the 2003 and to Outline Business Case and Full Business case, as providing flexibility in its approach to appraisal.
assessing and making the case for public investment. 2018 updates. well as specific policy areas. For example, analysis of Consistency of approach – The Green Book sets out
This paper, prepared by economists and other technical The 2003 edition set out a more analytically robust transport infrastructure investment is supplemented common parameters and assumptions that all project
specialists at Arup, seeks to assess the extent to which approach to both appraisal and evaluation. This was by Transport Analysis Guidance (TAG) published by appraisals need to meet. This is the key aim of the
the Green Book process is compatible with the (new) apparent in the ‘unbundling’ of the discount rate, the Department for Transport. The Department for guidance, enabling decision makers to compare projects
levelling-up agenda and explores the potential for (applied to account for the preference society has for Communities and Local Government (now the Ministry on a consistent basis across Government.
modifications that would ensure government objectives receiving goods or services now rather than later). of Housing, Communities and Local Government)
are met, whilst the integrity of robust decision making Historically a 6% discount rate was used as a ‘catch published the most recent DCLG Appraisal Guide Balanced approach of different objectives – Through
is maintained. all’ value that included social time preference as well in 2016, used for the appraisal of residential and its best practice five-case model, the Green Book
as other related factors. The new discount rate of 3.5% commercial investment cases. provides a framework for decision making not only
We first provide a brief overview of the history based on economic rationale, but also on strategic
and content of the Green Book in its current form was to be used alongside other calculations including More detail still is included in the Additionality Guide,
valuation of systematic risk (the amount a decision objectives, funding availability and wider deliverability
taking special care to assess important modifications published by the Homes and Communities Agency considerations. With few exceptions, the Green Book
introduced in 2003, and more recently in 2018. maker would be willing to pay to remove uncertainty). (now Homes England and the regulator of social
Another important modification was the inclusion of approach allows a fully rounded presentation of the
Through this analysis we identify existing features of housing) - now on its fourth edition. And the devolved issues to decision-makers.
the methodology that we believe could help facilitate optimism bias to account for the systematic tendency to administrations have also produced their own forms
“levelling up” but that perhaps are being underused. underestimate costs and time of delivering investments. of guidance, which are often fundamentally based This is evidenced in projects which are granted
We then provide suggestions for how other elements of Methods were also introduced to estimate the impact of on Whitehall equivalents (such as Scottish Transport funding based on an expected low Benefit-Cost Ratio
the Green Book (plus amendments and additions) could policies on - for example – regions and socio-economic Appraisal Guidance, or STAG, in Scotland, and but with a strong strategic rationale. An example of
enable the Government to support local and regional groupings. WelTAG in Wales). this is the Jubilee Line Extension (JLE), which at the
economic development objectives as well as other The most recent addition of the Green Book, published time of appraisal only showed a BCR of 0.95, thus
national policy objectives such as climate change. We would argue that these guides have, over time, showing higher costs than benefits. Although this
in 2018, significantly increased the range of valuation provided improved analytic rigour and a wider range
techniques to allow for appraisal of wider economic scheme predates the five-case model, it demonstrates
We conclude that better use of existing guidelines of valuation techniques to practitioners engaged in that often projects are approved on strategic rationales
combined with greater political devolution of decision- benefits and costs. This included the appraisal of developing business cases for projects with a public
environmental effects, of “non-market” outcomes, and political decisions. In this case, the project was
making would go some way to alleviating concerns sector focus. approved on the basis that there would be substantial
about inequality in the country and how best this can be of health and wellbeing outcomes and the effects of
addressed from a Treasury perspective. agglomeration and clustering on productivity.
We hope that it makes a useful contribution to the Techniques to analyse distributional impacts were 1
See for example: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/209530/final-overview-report.pdf
debate regarding the Green Book and its role in further enhanced at both the regional and sub-regional 2
Banister (2007), “Quantification Of The Non-transport Benefits Resulting From Rail Investment” https://www.tsu.ox.ac.uk/pubs/1029-banister.pdf
multiplier
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
(though unquantified) benefits from the regeneration of of national economic growth.
the South Bank and the creation of new jobs in Canary
Wharf2. (Interestingly, appraisal methods have evolved Six years after the term “rebalancing the economy”
and more evidence has become available showing that became mainstream in politics, there is a sense that
the benefits of the JLE are likely to have significantly not enough has been done to achieve this broader goal.
outweighed the costs of the scheme.) As a result, questions have emerged as to whether
the Green Book is in some way culpable for a lack of
Flexible framework adapted by government public investment into those regions that are lagging
departments and devolved administrations – The behind more successful ones, such as Greater London
Green Book sets out the overall rules for project and the South East.
appraisal, but it does not provide specific guidance on
how benefits should be estimated. This leaves room for In this context, a key question emerges of whether
departments (and other parts of government) to define the “failure” to rebalance the economy is the result of
which benefits should be part of a core benefit-cost the Green Book’s guidance and/or perhaps the way
ratio and how to estimate them. In the context of the it has been utilised. Could the regional disparities in
“levelling up” agenda it is largely within the remit of the country be addressed through changes in how the
individual government departments to choose how they Green Book is written and indeed used? However,
can focus research into, for example, wider social and even if this is the case, we should recognise that there
distributional benefits. These in turn can lead to the are inevitably other major factors at play such as the
creation of robust evidence that then contributes to the structure of the economy, the overall size of public
quality of any given appraisal process sector resources available for (investment) spending
and so on.
Consistency of values across the country – the Green
Book provides consistent assumptions to be used for Notwithstanding these other factors, the Government
investments across the country, thus in turn leading clearly believes that there are opportunities for Green
to similar assumptions being used in the appraisal Book improvements. At the last Budget in March 2020
of projects. Government departments often choose it stated, “the review of HM Treasury’s Green Book,
to provide average national values to be used in the […] will consider how the design and use of project
estimation of benefits. Arguably this strengthens the appraisal affects the ability of all areas to achieve their
case for investment in less prosperous parts of the economic potential.”
country insofar as benefits have the same weight no In the next section of this paper we explore potential
matter where they occur. (For example, the value of improvements in how both the content and the use
journey time savings estimated based on DfT’s TAG of the Green Book may help with the “levelling up”
will be the same for a rail project in the North as in agenda.
the South East.) However, this is not the case where
benefits are estimated based on actual known market
values, such as land value uplifts and productivity
uplifts used in the appraisal of housing developments.
Is a new Green Book needed?
There have been calls for changes to the Green Book
from across the political and geographical spectrum.
This has stimulated discussion on whether new
appraisal methods may be required which favour
wider redistribution and social outcomes in addition or
perhaps even at the expense of achieving higher levels
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Revamping the Green Book?
Various suggestions have been made as to how the What do we mean by levelling up the economy? at scale for a fairer and stronger future” published in
Green Book may be improved. These include: February 20203, evidence for regional inequalities is
Before addressing how a revamped Green Book can presented and the case is made for a large-scale, and
• how to better account for local impacts to “spread contribute to the levelling-up agenda, it is important long-term approach.
opportunity across the UK”; to define what we mean by this.
We consider that the Government should continue to
• how to better account for the impacts of In the absence of a clear definition or specific build on this evidence while setting out a strategy for
transformational schemes; and objectives, the Government perhaps needs to think levelling up.
about the following key questions:
• how to improve the appraisal of wider social and As always, it is essential that objective analysis is
distributional benefits, amongst others. • Should we be striving towards a more equal used when defining the problem(s) that the levelling
society? up policy solution is trying to solve. This is especially
Central to this discussion has been how to get rid of
the “London bias”, with Barry White, Chief Executive • How large a gap is acceptable? the case when looking at London. As Chris Giles in
of Transport for the North stating, “Recognition that the Financial Times has pointed out: “One reason why
the Treasury Green Book way of making investment We need to consider where the inequalities lie. London looks so affluent is because it is treated as a
decisions does not work is nothing new to the people Does “levelling up” also mean “levelling within”? single region in official UK statistics. Other regions are
of the North” . The Green Book framework has been Inequalities are not just spatially distributed across very different, comprising cities, towns and rural areas.4
accused of favouring investment in London by focusing regions, but also within cities, and between rural and ” Furthermore, after taking housing costs into account,
on net national economic benefits, putting local urban areas. Whilst London is considered to be the the UK appears “much more equal.” He concludes that
objectives in second place. most successful city in the UK based on its economic median incomes after tax in London are actually no
performance, it also contains some of the most deprived higher than the national average.5
With this in mind, this section focuses on providing neighbourhoods in the country.
suggestions for “quick wins” by making the most of
the inherent flexibility of the Green Book as well as In this context, the following key questions emerge:
exploring potential improvements across the following • What measures of success should we be looking at?
topics: And to what extent it should be left to the market to
• Supporting local objectives deliver these?
• Enabling levelling up and better accounting of • What are the risks of not supporting redistribution of
distributional impacts economic development? This needs to be considered
in the context of housing affordability and the rise of
• Improving appraisal methods automation putting lower skilled jobs at risk
• Increased transparency of decision making • What is the impact of existing government spending
on the existing distribution of productivity, incomes,
• Making better use of evaluation poverty, wellbeing etc. What needs to be done to reduce
In each section we discuss the potential for changes inequalities?
to the Green Book to balance the need for improved The UK 2070 commission has been looking at regional
redistribution of economic activity with the broader inequalities in some detail. According to them,
objective of delivering higher levels of economic significant public investment in the order of £1 trillion
growth at the aggregate level. is needed. In their report, “Make No Little Plans: acting
3
http://uk2070.org.uk/wp-content/uploads/2020/02/UK2070-FINAL-REPORT.pdf 4
https://www.ft.com/content/c9db4c66-5971-11ea-a528-dd0f971febbc
5
ibid
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Rationale Generating options Short list Preferred option Evaluation Rationale Generating options Short list Preferred option Evaluation
Supporting local objectives
We consider that supporting the delivery of local it provides approved guidance and methods, Another example of how political processes may Barber Review, providing supplementary guidance to
economic and social objectives can be strengthened recommended tools for developing options and prevent a flexible application of the Green Book lies in the Green Book, greater focus is given to outcomes
by providing: standard values for use across government. It helps the close scrutiny by the National Audit Office (NAO)8 and how to achieve those. The first pillar underpinning
officials develop transparent, objective and evidence- in checking the value for money of investments made this framework is about setting goals, focusing on what
• increased clarity of objectives across Government based advice for decision making that is consistent by Government. While we would argue this is a process overarching goals the public body is aiming to achieve
departments across government.” This statement reinforces the that contributes to transparency and accountability of and how it is monitoring the delivery of these11. This
• increased transparency of how fund objectives are flexibility provided by the framework, leaving the Government, this process may contribute to a stronger Public Value framework12 should help the Government
set decision making and interpretation in the hands of focus on the Economic Case. Amending how the in pursuing the levelling-up agenda, by setting specific
decision makers. The Green Book does not mention the NAO looks at projects with a stronger focus on policy objectives around it and identifying which projects to
• a stronger focus on levelling-up and local balance of local and national objectives, but it could alignment and outcomes may help with the levelling up prioritise when it comes to allocating spending within
objectives in the Strategic Case for investment perhaps be amended to do so? agenda and other policy objectives. government departments and creating new funds
that scheme promoters can apply for. This could be
• review guidance developed by Government While the Green Book provides ample room for Furthermore, the specifics that appear to drive underpinned by cross-departmental co-ordination.
departments to support levelling up interpretation, in practice, however, the funding of frustration lie not within the Green Book, but with the
projects is granted based on specific criteria defined corresponding piece of departmental guidance. In the Overall, we recommend a greater emphasis on
Helpfully, the following key elements in the Green in specific funds, and it is arguably this which is more transport sector, frustration with the approach that puts developing options that are aligned with key policy
Book currently enable scheme promoters to develop pivotal in determining how funding is allocated. Often the value of travel time savings front and centre, which objectives to make sure that we investments are
the business case for projects that could contribute to funds include the need to demonstrate net national has been critiqued by academics and others9, is the achieving the right outcomes. This should lead to a
levelling up the economy: economic growth improvements and other criteria that responsibility of the Department for Transport, not HM strong Strategic Case that clearly articulates the need
• the need to demonstrate the social value generated do not favour investment in more disadvantaged places. Treasury. for a scheme.
by the project, defined as economic, social and An example is presented by Homes for the North. Looking at public spending more widely, there has One way to progress the levelling up agenda would
environmental benefits – providing a wide framework It criticised how the funding for housing and also been in recent years a discussion around the be to establish funds that have “levelling up” (across
for assessment not only focused on economic outcomes infrastructure in 2018 was allocated to places with high focus on inputs, particularly spending, versus longer and within regions) at the forefront of their criteria
but wider social and environmental impacts unaffordability and high rents based on the mechanisms term outcomes. Sir Michael Barber, in his review of how funding will be allocated as well as increased
• the need to consider distributional impacts – this is set out by Government, leaving many places in the of the Public Value Framework in 2017, stated that transparency and monitoring of objectives.
mentioned in the Green Book at the start: “The first step North not meeting the eligibility criteria.7 This coupled historically HM Treasury has placed greater emphasis
with the fact that there is a widespread belief that on inputs rather than outcomes10. While projects would still have to demonstrate that they
in appraisal is to provide the rationale for intervention. are value for money, a test could be imposed so that
This can be based on ensuring markets work effectively HM Treasury will only fund projects with a Benefit-
Cost Ratio of over 1 (sometimes over 2) based on net Related to this, the National Audit Office argued in only projects that achieve a distributional impact are
e.g. ensuring pollution is accounted for by business, or 2016 that the absence of an overarching strategic considered eligible for funding for specific grants from
to achieve distributional objectives e.g. to promote fair national economic benefits has led to a potential bias
towards projects that can more easily demonstrate framework for achieving government’s objectives and the start. In the context of devolution, this can mean
access to education.” balancing short-term priorities can have a negative different local and regional authorities developing some
economic growth benefits, leaving projects of a more
• the need to consider policy objectives in the distributional nature behind. impact on long-term value for money . In the recently of their own criteria for funding within geographies.
“Strategic Case”, in addition to economic impacts and revised Public Value Framework informed by the
value for money as part of the five-case model. The But if this is indeed the case, the “problem” does not
Green Book does not state explicitly whether these lie with the Green Book which is focused on providing
should have more weight when funding decisions are the best framework to assess project impacts – allowing 8
https://www.nao.org.uk/about-us/our-work/value-for-money-programme/
made. decisions to be made as to whether to invest. And 9
See for example Metz (2008) “The Myth of Travel Time Savings” and others
decision-makers are at liberty to choose to place more
Quoting the Green Book itself, “The Green Book is
10
Sir Michael Barber (2017), “Delivering better outcomes for citizens:” https://assets.publishing.service.gov.uk/government/uploads/system/
emphasis on the “non-BCR” case for investment
uploads/attachment_data/file/660408/PU2105_Delivering_better_outcomes_for_citizens_practical_steps_for_unlocking_public_value_web.pdf
not a mechanical decision-making device. Rather, (through making the “strategic” case for a project). 11
NAO (2018), “Improving government’s planning and spending framework”, https://www.nao.org.uk/wp-content/
uploads/2018/11/Improving-government%E2%80%99s-planning-and-spending-framework.pdf
12
HM Treasury (2019), “The Public Value Framework” https://assets.publishing.service.gov.uk/government/uploads/
7
https://www.insidehousing.co.uk/comment/comment/we-must-not-lose-sight-of-opportunities-to-level-up-the-country--65755 system/uploads/attachment_data/file/785553/public_value_framework_and_supplementary_guidance_web.pdf
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‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Rationale Generating options Short list Preferred option Evaluation Rationale Generating options Short list Preferred option Evaluation
The role of appraisal guidance in supporting levelling up the economy
We believe there is merit in exploring new methods However, the method is rarely used in practice. The Green Book guidance does highlight the challenges • providing more clarity on what outcomes we are
to incorporate social and distributional benefits in the Department for Transport’s Transport Appraisal with distributional appraisal in relation to the aiming to achieve
BCR and encouraging a more widespread application Guidance (TAG) draws on the Green Book and includes uncertainties in the assumptions made about affected
of distributional weightings (already included in the a unit on distributional impacts appraisal (DIA). populations. It recommends that weighted results are • developing and reviewing metrics that capture
Green Book) of interventions in lower income areas. However, its guidance on appraising distributional presented separately to the unadjusted analysis. wellbeing and social impacts
effects is arguably underdeveloped in comparison to • developing new guidance on cross-sectoral impacts
Distributional appraisal other benefit analysis and, could be updated to be more One aspect of the TAG analysis that does appear to
have a positive effect on informing decision makers and how to integrate appraisal guidance across
We consider that distributional appraisals should aligned with the Green Book. departments
of the distributional case for an investment is the
adopt a more prominent role in business cases by: Furthermore, regional distributional effects are not spatial mapping of the transport user benefits across The Green Book does already include measures of
• encouraging the application of distributional included at all. With a major part of government the traffic model area. For example, user benefits are wellbeing to an extent through its recommendations
analysis guidance in the Green Book investment going into transport there is potentially a often primarily concentrated around the stations and on assessing social value. The distributional appraisal
strong case for improving the distributional appraisal in the local authorities along the route of projects and is one way of incorporating social value into
• developing new guidance on regional and better incorporating the results into the BCR, the surrounding areas. Seeing the visual representation can appraisal, as discussed above. But there are currently
distributional analysis appraisal summary table, and the overall decision help to easily identify areas that are likely to benefit limitations to assessing social value and wellbeing,
making on projects. (or disbenefit), enabling an understanding of the in part due to the difficulties of measuring wellbeing
• developing further guidance on spatial impacts distribution of impacts.
including the use of spatial analysis tools Notwithstanding these points, we would argue that indicators quantitively and monetising them, in order
where the existing TAG DIA is increasingly being used This approach does seem to engage people more than to incorporate them into a BCR. In comparison,
Already the Green Book’s distributional analysis in transport appraisals, the results are often overlooked presenting the results in the standard distributional significant amounts of work have been done to assess
methodology goes some way to incorporating the and have relatively limited impact on government impact table (which risks losing focus on the regional economic benefits such as the value of time for
appraisal of distributional effects of government funded spending. The TAG approach to distributional impacts spatial component). transport appraisal. More research into social value and
interventions and the impacts on lower than average currently only shows the share of benefits attributed to wellbeing measures is perhaps needed to fully capture
income groups. It recommends that, where there are each income quintile based on incomes averaged across Green Book guidance could attempt to cover more the impact of people’s quality of life.
high distributional effects, detailed analysis is carried large spatial areas that line up with the traffic model comprehensively the spatial component of national
out. Distributional weights are applied to monetised and subnational projects and provide advice as to This is in part because, when we consider levelling
areas. The reason for this is likely in part to be because up and distribution of income and wealth, we need to
benefits in areas with lower than average incomes. the existing method requires making large assumptions how spatial mapping and analysis could be used in
The benefits are proportionately weighted to reflect distributional appraisal. be clear on what we are aiming to achieve and how
on who is using the infrastructure in terms of where current metrics capture government objectives. Some
the greater utility that investment has for low income they live and their incomes. It does not necessarily
beneficiaries compared to those with higher incomes. Finally, a potential area of interest is whether land value countries have moved away from measuring just
reflect the incomes of the users that are benefiting. uplift leads to benefits for higher income groups and GDP to measuring success using elements of national
These weightings can then be used when there is likely For example, the analysis does not take into account
to be a social value due to benefits from a project disbenefits for lower income groups, making it harder wellbeing. Iceland uses a framework of 39 wellbeing
people’s propensity to travel on new infrastructure or for them to afford homes leading them to relocate – indicators to help shape their aspirations to create
that are not captured in simple additionality. These the change in population or income of an area over the
weightings affect the monetary values that feed into and thus affecting the social make up of an area, the a wellbeing economy14. The UK 2070 commission
appraisal period. distribution of economic development and access to recommends the use of a broader set of outcomes, for
the Benefit Cost Ratio (BCR), the core substance of
economic appraisal. In addition to this, the Green Book In addition, the DIA does not take into account wider opportunities. Perhaps more evidence in this area can example using local metrics on healthy life expectancy
states that “It may be necessary to undertake additional economic benefits, simply focusing on the distribution help refine appraisal methods and assumptions. or good work.15
distributional analysis for interventions with sub- of user benefits and environmental impacts. If these The use of new metrics? Traditionally it has been the case that appraisals across
national or regional distributional effects (e.g. those that aspects were incorporated into existing guidance, it different sectors have not been consistent in the range
involve redistribution of welfare to different parts of the could help to improve the consideration of the effect We believe there is a case for investigating the use of benefits analysed. In Arup’s experience, while air
UK)”13. that transport projects have on the spatial variations in of new metrics that better capture social value and quality and carbon emissions tend to be analysed in the
income and economic development. wellbeing impacts. These would focus on: appraisal of public transport projects, this has not been
13
HM Treasury Green Book (2018), Paragraph 5.73 14
https://wellbeingeconomy.org/iceland
15
http://uk2070.org.uk/publications/
Arup | June 2020 14 Arup | June 2020 15Arup Perspectives Arup Perspectives
‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Rationale Generating options Short list Preferred option Evaluation Rationale Generating options Short list Preferred option Evaluation
the case of renewable investments, which have focused A key challenge, however, will be achieving effective Local Government (DHCLG, now MHCLG) estimated to business cases being developed for the Future High
on GVA, employment and other wider economic collaboration across departments, which will require the benefits of housing development by assessing Streets Fund. This fund, (which will provide up to £25
impacts. Appraisals across sectors should look new ways of working. how many jobs the development would generate and million to towns across the country for a mix of public
consistently at a wide range of outcomes and benefits. the Gross Value Added (GVA) associated with them. realm, local connectivity and development funding to
Net additionality – enabling jobs growth in the right Assumptions on displacement provided by Homes revitalise high streets and the local economy), will be
It is perhaps also important that we guard against too places England in the Additionality Guide18 were applied to allocated to a great extent based on land value uplifts
much of a shift away from a focus on the core objective provide an estimate of how many jobs could actually generated by these investments, with the Economic
of economic growth for one simple but compelling We consider that additionality of local employment
is important to enable us to fund projects that be created and how many would have been available Case having a weight of 50% in comparison to a 20%
reason; it is vital for generating the resources which anyway at a local and regional level. weight for the Strategic Case and 30% weight for
allow us to enjoy increasing standards of living for promote local economic development.
deliverability20.
all citizens, and it provides the taxes vital for funding Local economic impacts should be given more DHCLG’s appraisal methodology19 changed
public service provision and maintaining healthy public weight if we really want to level up by focusing on: subsequently to base economic benefits of new While the fund may well enable towns to maintain and
finances. In the context of the traditional framing of the developments primarily on land value uplift. According create jobs at the heart of towns struggling to improve
“richer” versus “poorer” debate, it should be noted that • developing funds with criteria that support to the guidance, the change was made to better capture their economic performance in an increasingly digital
shift away from focusing on economic growth could levelling up objectives net private impacts and, separately, external impacts. world, the economic case does not explicitly take
cut both ways. As Chris Giles of the FT - quoting This has diminished the role of local employment account of what will happen to jobs in these areas,
research by the ONS - has highlighted “A dynamic • reviewing appraisal methods that favour wealthier and, in some ways, may have undermined the case for but on land values, which ostensibly presents a better
economy does not [necessarily] buy happiness…Even areas investment in those locations where land values are measure of net additional economic benefit at a national
in London’s most dynamic areas, people are less likely • promoting better alignment of the strategic and depressed in comparison to the rest of the country. This level and only indirectly captures local job creation.
than average to say life is worthwhile”16. economic cases stems from the fact that there are wide variations in This seems slightly odd when the fund is aimed
development values around the country, but that two of precisely at local economic development.
In assessing new metrics, the Government should The Green Book today takes a national approach to the balancing factors – development costs and existing
explore how the guidance developed across different assessing benefits and costs, favouring those projects use land values – tend not to vary as much. Furthermore, private sector investment in a scheme is
departments can be integrated to better account for that will deliver net national economic benefits. Not deemed as having a negative impact on the BCR. This
cross-sectoral programmes of investments. In the case only that, but it also assumes that employment impacts Without making a compensating adjustment, for is also at one level counter-intuitive in policy making
of transport investments, for example, it is widely from most infrastructure and policy investments – example by assuming greater potential for development terms, if for example, we were trying to encourage this
recognised that transport connectivity is an enabler except those aimed specifically at targeting labour values to increase where starting from a lower base, private sector investment (particularly in a part of the
of growth and economic activity and the economic supply – will generate zero employment at a national these areas are likely to be disadvantaged by the land country which has a disproportionately large public
and social impacts from transport investments depend level. value uplift approach. sector in terms of its economic structure).
largely on other policies including skills. The interplay
between education, transport, environment, health, This is underpinned by the assumption that these The focus on national impacts as well as the There is clear evidence that local economic policies
industry and employment policies should be further employment effects are already largely determined by assumption of zero net employment additionality at can attract employment and increase the number of
explored. These can be done through: macroeconomic decisions on the level of overall public a national level make the case for investing in local jobs at a local level. According to the What Works
expenditure17 and any local increase in jobs is likely to regeneration projects particularly challenging. This Centre for Local Economic Growth21, one new job in a
• developing evidence on the synergies of investments displace economic activity from somewhere else in the is relevant in the current political context where tradable sector creates between 0.4 and 0.9 additional
across sectors country. levelling up the economy is a key national strategic jobs. Skilled jobs and jobs in high-tech industries may
priority. For example, the economic case for a project create as many as 2.5 additional jobs. Although these
• promoting the use of logic maps that set out the As a result, local employment effects are treated with that improves local connectivity and delivers new jobs may be displaced from other areas within the same
mechanisms whereby benefits are realised through a high degree of caution and not considered to play a developments that would not have been delivered by country, local increases in employment and economic
different types of investments material role in investment decisions. However, up until the public sector cannot directly justify investment activity can have long-lasting dynamic effects by kick-
• developing guidance on how to better account for 2016, the Department for Housing, Communities and based on local employment. This applies, for example, starting a process of increasing economic density that
cross-sectoral impacts and how appraisal guidance
across departments should be used. 18
https://www.gov.uk/government/publications/additionality-guide
17
DCLG (2016), The DCLG Appraisal Guide https://assets.publishing.service.gov.uk/government/uploads/
19
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/576427/161129_Appraisal_Guidance.pdf
system/uploads/attachment_data/file/576427/161129_Appraisal_Guidance.pdf
20
https://www.gov.uk/government/publications/future-high-streets-fund-call-for-proposals
21
https://whatworksgrowth.org/
Arup | June 2020 16 Arup | June 2020 17Arup Perspectives Arup Perspectives
‘Levelling up’ and revising the Green Book – where next? ‘Levelling up’ and revising the Green Book – where next?
Rationale Generating options Short list Preferred option Evaluation Rationale Generating options Short list Preferred option Evaluation
further attracts more economic activity in the medium Overall, while the assumption of zero net additionality Estimating the demand and benefits for these schemes mentioned earlier in relation to cross-sectoral impacts.
and long term. The theory of agglomeration economies of employment at a national level may be something is challenging, particularly where they aim to generate This is particularly the case for those schemes that are
explains this process and mechanisms showing how many economists agree with, there is evidence that new demand and transform current behaviours. This is aimed at creating demand and stimulating growth as
economic density attracts more economic activity additionality of employment can happen at a local and the case he Northern Powerhouse Rail scheme, which opposed to delivering capacity to meet past growth
leading to not only larger cities, but also more regional level. This is a key economic outcome that aims to encourage increasing economic interactions trends. This can enable the development of new
productive places. While the Green Book acknowledges should drive public funding decisions to enable local between the cities of the North and therefore is demand modelling and appraisal tools to produce more
the productivity side of benefits, local increases in economic development, if that is the objective we are expected to create new demand for rail, while enabling robust business cases.
employment are left out of the cost-benefit analysis. trying to achieve. growth and productivity improvements. In comparison,
the Crossrail scheme in London is designed to enable Addressing climate change
The focus on net national impacts also risks causing When local and regional objectives dominate the London to meet forecast demand and growth in line
a mismatch between the strategic and economic case strategic case for investment, local and regional costs We consider future changes to the Green Book
with past trends. Appraising a scheme like NPR is update should:
narrative. Whilst the economic case concentrates on and benefits should also be given a more elevated much more difficult and requires the consideration of
national economic impacts, the strategic case, by role in the economic analysis along with net national future scenarios. • acknowledge the importance of climate change
demonstrating alignment with current government impacts. This is key when we think about devolution in appraisal and refer to it as one of the most
policy, often focuses on local and regional objectives as combined and regional authorities take ownership We argue that appraisals should use scenarios more important aspects to consider
in the context of national policy. Local and regional of funding and investment decisions. Maintaining or often in appraising transformational schemes. An
objectives are in fact often what drives the development indeed accelerating a recovery of local employment increased use of scenarios and less reliance on a • develop sound and rigorous measurements for
of new schemes, particularly when local and regional may also rise up in the priority list of government central case can help stress test the appraisal results quantifying climate change impacts and
authorities become the scheme promoters. It would objectives because of the Covid-19 pandemic. of schemes and increase the robustness of value for
therefore also make sense to present regional costs money analysis. These should account for future trends • implement the measurement in a standardised and
and benefits in the economic case, providing increased Appraisal of transformational schemes in behaviour based on a STEEP (Social, Technological, easily scalable fashion
consistency in the narrative presented throughout the We consider that the appraisal of transformational Economic, Environmental and Political) framework. The UK declared a climate emergency on the 29th of
five cases to achieve a more coherent business case. schemes could be improved by: The use of scenarios was recommended in a report April 2019. The Green New Deal set ambitious targets
Close alignment and integration of the strategic and published by the Commission for Travel Demand including net zero carbon emission by 2050.Therefore
economic case narrative and analysis is now required • the increased use of future scenarios in 2018 and also our work for RSSB and DfT on investments that enable the UK to achieve these should
by the Department for Transport, who updated their understanding the drivers in future travel behaviour be prioritised. And in our most recent interactions with
Transport Appraisal Guidance (TAG) in 2016 requiring • increasing the evidence based on the impacts . This work showed that significant differences in
of these schemes and their synergies with other government departments, we note that a sensitivity test
an Economics Impact Report that provides an appraisal demand for transport could result from varying trends is now required on a higher value of carbon.
methodology consistent with the strategic case22. investments in factors such as working from home, the spatial
Investing in transformational schemes is a key part of distribution of economic activity or technological However, current project appraisal methodology has
Finally, in the context of places and industries that trends, amongst others. Transport for the North has not been updated to support climate change targets.
compete on a global scale, such as London, Oxford Government and Treasury decision-making processes.
These are schemes of national significance with the already incorporated the use of scenarios in their Moreover, there has been growing public concern over
or Cambridge, investments that support high-skilled investment planning work and other authorities with the applicability of appraisal methods for some of the
industries directly or indirectly may results in a net potential to generate substantial economic impacts
but also committing considerable amounts of public planning powers should follow this approach . largest infrastructure plans of the country. Despite
increase in jobs nationally as they are able to attract significant changes to the 2018 edition of the Green
foreign investment that translates into more jobs. funding. Often the benefits of these projects are subject More research and evidence are also required to
to high uncertainty given the long-term nature of the Book, the Natural Capital Committee (NCC), who
Although more evidence is required in this sphere, enable us to isolate the impact of these schemes and worked with the Treasury to update the guidance to
the Green Book should acknowledge this and provide investment, which can lead to big debates about their their relationship with other types of investments, as
clearer guidance on how to account for international value for money. This has been the case of HS2 and its
effects. This is particularly relevant in the context Benefit-Cost Ratio, which have endured a high level of
of Brexit, as the UK seeks to increase its global scrutiny in the press.
competitiveness through new policies and investments. Commission for Travel Demand (2018), All Change? The future of travel demand and the
23
implications for policy and planning http://www.demand.ac.uk/wp-content/uploads/2018/04/FutureTravel_report_final.pdf
24
Arup (2018), Understanding the drivers of future travel behaviour https://www.sparkrail.org/Lists/Records/DispForm.aspx?ID=25954
22
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ 25
Transport for the North (2018), Connectivity and Labour Markets in the Northern Powerhouse https://transportforthenorth.
file/556077/webtag-wider-economic-impact-appraisal-tag-unit-a21.pdf com/wp-content/uploads/Connectivity-and-Labour-Markets-in-the-Northern-Powerhouse-Report-min.pdf
Arup | June 2020 18 Arup | June 2020 19You can also read
