Green light for wider thinking on appraisal?

Whatever is made of the detailed content in Chancellor Rachel Reeves’ spending statement, she has certainly re-mapped the public financial planning landscape by her changes to the priorities and processes applied to decision-making and resource allocation.

In particular, Reeves delivered on her promise to publish an overhaul of the Treasury’s ‘Green Book’, which sets the rules that govern how individual public investment plans are judged. This is intended to facilitate a change from the current templates for costs and benefits, which have been accused of endlessly prioritising more resources for the capital and the south.

The Treasury’s Green Book Review, published alongside the spending statement, claims to mark “a new approach to appraisal in the public sector”. It is one which should enable the more effective assessment of place-based interventions and broader transformational strategies, and is expected to have significant implications for transport scheme assessment and funding allocation. The conclusions of the Review will be adopted straight away and an updated Green Book published at the start of next year. The Treasury says it has listened to experts and stakeholders and “ heard loud and clear the concerns about poor strategic cases underpinning projects, the over-emphasis on benefit-cost ratios (BCRs), and a lack of clarity on how to appraise ‘transformational’ schemes”. The Green Book, and the way it is used, therefore needed to change. The report sets out actions to achieve this. “The review had not found conclusive evidence that the methodology set out in the Green Book is itself biased towards certain regions”, the Treasury says. “However, it has found that the methodology could be improved by reviewing the discount rate, to ensure the fair assessment of transformational projects that provide long-term benefits.”

The review considered potential problems with the Green Book guidance itself, how the guidance is being applied in practice, and the wider culture around appraisal and decision making in the public sector. The Treasury identified six important issues that needed to be addressed to ensure ministers and other decision makers are confident that they are receiving fair, objective and transparent advice on investments across the different regions of the United Kingdom. These were “concerned more with the practice of appraisal in the public sector rather than the methodology of the Green Book itself,” the Review seeks to explain

The review of the Green Book is indeed generally rather defensive of past practice in the face of criticism from those regions and organisations who feel they have been disadvantaged by the established methodology.

Work will now take place with relevant departments, including the Department for Transport and Ministry of Housing Communities and Local Government, as well as the mayoral authorities, local and regional government, through a taskforce to introduce place-based business cases. These will bring together the different projects that are needed to achieve the objectives of a particular place. Place-based business cases are intended to make sure that the government properly assesses the complementaries between different projects, such as housing and transport. Another output will be to improve the Green Book guidance on appraising transformational change. The Treasury will commission an independent review of the Green Book discount rate to make sure that the government is taking a fair view of the long-tern benefits that arise from transformational investments. The Green Book will meanwhile be updated to provide greater clarity on the role of the BCR in appraisal. It will make clear that the Green Book does not endorse the use of arbitrary ‘BCR thresholds’. It will outline that a BCR of less than one does not automatically constitute poor value for money and that The Treasury does not simply rank different projects, with different objectives, by their BCRs as a means of allocating funding. It says it will ‘clamp down on the over-emphasis on BCRs in government decision making, while recognising that they remain one important summary metric used to inform judgements about value for money.’

In a welcome output which could usefully be followed by the DfT regarding its own impenetrable suite of transport appraisal guidance, the Treasury Review has resolved to radically simplify and shorten the Green Book and the accompanying business case guides, publishing an updated Green Book at the start of 2026,making clear the level of detail that is proportionate for business cases of different levels of cost and complexity, with examples of core appraisal techniques.

Specifically for transport investments, it is stated that the government’s approach to valuing travel time savings does not skew decisions in favour of more affluent areas, at the expense of less affluent areas, since the DfT’s Transport Analysis Guidance recommends that appraisals use the same value of travel time for all parts of the country. However, the assumption that time savings continue to represent the main benefits of transport investments goes unquestioned, whereas the evidence suggests that in reality people take such benefits in the form of better access to desired destinations. 

over the years, appraisal techniques emanating from the transport department and their sacred TAG guidance, have migrated across to economic development. One was the idea of land value uplift — and in particular the practice used by DfT analysts to capture the uptick in values due to road improvements, now the principal economic benefit used to justify a property-based renewal project

So what should we expect the impact to be of the Green Book changes? JP Spencer, director of devolution policy at Labour Together and a former head of the Green Book in the Treasury, recently commented that “no other piece of bureaucratic text seems to ignite as much passion and confusion in policy circles, particularly when it comes to regional disparities.”

He points out that, over the years, appraisal techniques emanating from the transport department and their sacred TAG guidance, had migrated across to economic development. One was the idea of land value uplift — and in particular the practice used by DfT analysts to capture the uptick in values due to road improvements, now the principal economic benefit used to justify a property-based renewal project.

Spencer notes that the gripe from Metro Mayors and others is that land values – especially housing ones – are significantly higher in the south of the country, than, say, in the north. This meant a Green Book orthodoxy which relies exclusively on ‘LVU’ will always have a natural bent towards the more prosperous South and a view that the Green Book has been blocking proposals that could be regarded as good value for money were a broad view taken about the nature and longer-term delivery of the impacts sought.

Reeves seemed to have heeded this concern when stating that the driving force of her spending plans was achieving renewal of national infrastructure, and achieving economic growth, especially by stimulating economies outside London and the south-east to tackle the long-standing issue in the UK of “growth created in too few places, and too few people feeling the benefits”.

This was the message that Labour’s leaders in the northern heartlands wanted to hear to unlock billions of pounds of investment for the North.

Now, perhaps, some of the fundamentals embedded in the usage of the Green Book may change, with ministers confident that the basis of the advice they are given aligns with their avowed policies and intentions, and the transport authorities promoting ‘ transformational ‘ transport schemes for their areas, now maybe able to get them more readily signed off through the business case and appraisal processes.

Spencer himself recently authored a new report, Nation Rebalanced for Labour Together, which set out ideas on how reform of the Green Book could help put the country on a path towards more broadly based prosperity. He raised three issues to be addressed, which it is still to be demonstrated have now been embraced if the Chancellor’s new revisions are genuinely going to improve upon previous efforts at reform.

Firstly, the Green Book system of guidance and approvals has become too long and complex. The Green Book is a single document, but also an ecosystem of further guidance and a culture that has built up around it. This leaves far too much room for interpretation or inconsistency, said Spencer. The 2024 review of R&D business cases found that business cases were averaging around 250 pages and taking nine months to go through approval processes. A less complex system with more streamlined approvals would save time and effort with shorter business cases designed to answer a simple question: how do we achieve good value for money?

Secondly, Green Book best practice could be updated to ensure project funding is primarily based on strategic objectives. This would mean an end to arbitrary cost-benefit ratio thresholds based on modelling, which by itself can never tell the whole story. A myth persisted that a proposal must have a benefit-cost ratio of one or even two to be considered value for money. “ This is false” said Spencer.” One only has to look at the successes of the Elizabeth Line or the Northumberland Line, both achieving passenger numbers way beyond those that were forecast, to realise that projects aligned to wider strategy are inherently difficult to model and sometimes can never capture the full costs and benefits.”

“Thus, economic modelling must be treated with caution rather than reverence. Used appropriately, it is a powerful aid to decision making. Taken too far, it can indeed be a blocker to good policy.”

Thirdly, said Spencer,we need greater transparency and evidence building. This should include published business cases and judgments on why decision makers believe a project to be value for money given the available information. This would be underpinned by better evaluation following projects to improve assumptions for future projects and certainty for supply chains over planned delivery to improve cost modelling. Devolution, which puts local communities in charge of where the marginal pound should go, would also help improve value for money.

As Spencer put it, “reforming the Green Book is not just about guidance, but about changing how the Government functions and how our democracy makes decisions. By reforming the culture and practice of investment appraisal processes, we can pave the way for a more equitable and prosperous nation.”

Treasury – and MHCLG – perspectives feature strongly in the Green Book Review. A better synthesis of their individual approaches would seem an excellent outcome of the Review to achieve business cases studying the direct benefit of new development, as captured by the LVU calculus. Regeneration and transformation from transport can often lead to a broad range of further external impacts including new housing or employment, public realm improvements and facilities that benefit existing communities (as well as new residents). These will not be fully captured through a simple transport-related LVU assessment.

The existing Green Book makes it clear that the appraisal of social value should consider not just economic market efficiency but overall social welfare efficiency. This is echoed in MHCLG’s own appraisal guidance which highlights the need to capture all the benefits and costs of an intervention. This includes all externalities in the form of place-making and regeneration, health, education, transport, environment, plus culture and amenity impacts.

The challenge facing appraisers, is that these externalities can often be difficult to quantify and monetise. Therefore, this can mean that metrics commonly used to assess a project’s value for money, such as those over relied upon BCRs and their input values do not reflect the real impact on society.

Looking forward, it seems that a wider application of LVU logic would be attractive to many economists inside and outside government, alongside a renewed focus on the broader external impacts referenced above. The Homes England economics team is already understood to be leading this debate, with its series on Measuring Social Value including place-making impacts of housing-led regeneration.

It would seem very helpful if the DfT and MHCLG were to have a serious exchange of thoughts in creating an appraisal framework that took transport outside its own narrow and self-serving comfort zone.

Peter Stonham is the Editorial Director of TAPAS Network

This article was first published in LTT magazine, LTT917, 12 June 2025.