A new edition for the Green Book?
Jay Atwal, Senior Consultant Economist at Bradshaw Advisory and expert on all things Green Book, shares this thoughts on simple tweaks the Treasury can make to unlock growth and spread opportunity ahead of the announced Green Book review.
In recent weeks much has been made of the Chancellor’s new push for growth. From plans for a third runway at Heathrow to a new ‘UK Silicon Valley’ between Oxford and Cambridge, it is clear that the Chancellor is feeling the heat. As Rachel Reeves looks to pull every lever in reach to stimulate the economy, one important announcement has been hidden away.
Tucked away in a press release on 24 January, the observant economists amongst us may have noticed a fresh pledge to review none other than the fabled Treasury Green Book.
For those in the know, HM Treasury’s Green Book Guidance has achieved almost mythical status for civil service mandarins and anyone involved in the minutiae of policy, due to its influence shaping decisions in Whitehall and outcomes nationwide.
While the Green Book may be little known to many to those outside of economic development, its power is immense.
For almost half a century, this technocratic document has punched above its weight - its sole purpose to assist decision making applied to all proposals that concern public spending, taxation, changes to regulations, and changes to the use of existing public assets and resources.
So why is it being changed?
This is not the first time Governments have revised the Green Book. In 2020 changes under the then Chancellor Rishi Sunak put greater emphasis on the strategic rationale of projects, delivering meaningful transformational change and place-based impacts.
This latest review, and the first under the new Labour Government, is not only part of their wider plan for growth. But it reflects concerns raised in recent years - especially by regional politicians - that the Green Book is simply too biased towards London in its methodology (largely due to the impact of high South East land values in the process).
For much of the last decade, I’ve led Green Book submissions for regeneration, housing, infrastructure and levelling up bids. I’ve seen its pros and cons, but above all its power. These changes really matter. Now that reform is back on the table, here’s my six top recommendations for how the Government can change the Green Book for the better:
1. Prioritise long term over short term outcomes
Always tricky in a democracy, I know! But, funders should ensure that the set criteria does not negatively impact the preferred option put forward.
Criteria such as when funding needs to be spent by (or will be lost), creates frustrating barriers to growth and perverse behaviour. The time horizon conflicts with the measurable element, which focuses on achieving long term outcomes.
To overcome this, announcing programmes and new funding streams (likely to be at a devolved level going forward) with longer time horizons - say five to 10 years - will allow time for projects to avoid these conflicts.
In the economic case of the five case model, the appraisal period can be 10, 30 or 60 years depending on the nature of the project. Limiting initial capital expenditure upfront to a few years is short-sighted. Benefits can be realised over a longer period despite projects taking longer to be fully operational.
2. Double down on the need for the strategic rationale to have greater emphasis on decision-making
Another common sense proposal that for some reason still gets lost! This was done to some extent in the 2020 changes, but its critical progress continues to be made. Some politicians and civil servants wrongly allow benefit-cost ratios (BCRs) to dominate decision making which is completely wrong.
Strategic rationale for projects is needed to ensure they are aligned with the wider regional and government priorities as well as having a strong logical rationale for the intervention.
For example, the government is currently producing its 10-Year Infrastructure Strategy due to be released in June 2025. Therefore, future projects should ensure that it's centred around these key themes. The 2020 Green Book changes showed a clear sign that the strategic rationale is taking greater emphasis rather than just basic benefits and costs which can be monetised.
Scheme promoters are usually best positioned to decide how the funding should be allocated to deliver transformational change to their communities including for the long-term plan for town.
Across England, Wales, Scotland and Northern Ireland £20 million is available for 75 pre-chosen towns from the long-term plan for towns. They require investment plans to showcase the vision for their area over the next 10 years and a 3-year investment plan (which of course we can assist with!).
At the time of writing, limited information has been published on whether the programme is still going ahead but ultimately it is important that the projects are those which are local priorities and what’s best for the place they live.
3. Realistic submission deadlines!
Arguably the most important and perhaps the simplest change to make. Give scheme promoters reasonable time to submit Green Book compliant business cases.
In recent years for previous funding streams such as Levelling Up, arbitrary timescales meant councils put together bids that weren’t ‘shovel ready’. Rushing projects to reach a certain standard e.g. RIBA Stage 2 (concept design stage) is not going to deliver successful projects. It’s time this changed.
In comparison, projects which have undertaken greater project development are likely to achieve better outcomes and a better use of public sector funding than those which have been needlessly rushed to meet a fixed deadline.
Devolved bodies (Mayoral Combined Authorities, Combined Authorities and County Councils) also need to be given the flexibility to decide which projects receive funding.
Government departments/agencies such as Homes England have a greater importance with devolution. They provide the much needed technical expertise/personnel that many of the newly formed authorities don’t currently have to cope with the additional powers devolved.
4. Stop backfilling optioneering analysis
Here’s a techy one for the economists reading. To achieve long term outcomes, projects need to stop what we call ‘backfilling’ optioneering assessments to show that the project they are putting forward fits best with Green Book Guidance.
The current process often feels like a tedious, tick-box exercise which shows you’ve selected a project based on pre-chosen options rather than a meaningful assessment of alternatives.
Backfilling reduces the potential for projects to deliver local and regional needs as projects are not considering all options carefully. As part of the process of shortlisting options, projects should also be putting forward credible and realistic ‘Do maximum’ and ‘Do Minimum’ options within the optioneering process.
‘Do Maximum’ options are supposed to be aspirational but often lack the vision to deliver transformational change above the preferred option. Mandating an economic assessment of this option for projects above a certain project value. Too often it’s only the ‘Do Nothing’ and ‘Preferred Option’ which get monetised.
5. More research to support the wider economic appraisal/funding model
Over the last five years, additional publications have been created to support the wider development of the BCRs. This includes new guidance on reference class forecasting to replace optimism bias and monetising social and environmental benefits of developments.
But further research is required to look at the wider impacts of development where benefits have typically been focused on the ‘private benefits of development’ from changes in land values.
Arguably, within the current guidance, schemes with a combination of low market values and high public sector costs will tend to suffer in terms of BCR. The response is either to identify and emphasise potential wider benefits, or to accept a lower value for money as a political choice.
Historically, BCRs have had the greatest influence on whether a scheme will receive funding. Politicians have sometimes used this as the ‘be all and end all’ to justify funding projects without considering other elements of the project.
We also need research into whether other funding models (instead of using grant funding) would deliver better value for money (VfM). Other funding models haven't been utilised enough which could unlock projects and fix viability gaps.
Given the freedoms allowed under the Subsidy Act and the appetite from the government to de-risk private investment and the uncertainty of Homes England’s future role, there is now a greater scope to pursue different ways of funding various projects. These new funding models could bring forward a number of projects which would not be economically viable under regular grant funding. Where appropriate, value for money assessments, should take into account these different funding models as standard.
(Ok here’s our last pitch) Bradshaw Advisory, in partnership with CBRE, have undertaken research for Greater Manchester Combined Authority and Homes England to show the impact of new potential investment models.
Our analysis showed the improvement in VfM associated with optimised funding arrangements (public and private), including those backed by pension funds via a ‘club of funds’, where more efficient support mechanisms can lower the net cost to the public sector.
6. Provide clear feedback to bidders so that projects can be improved and approved
Last but not least. You would think this already exists but alas. There’s nothing more soul destroying or inefficient than spending hours and resources on a bid and never getting a proper response.
Business case reviews are typically undertaken by government departments, agencies, public sector bodies or consultants. But a longstanding issue is the sheer lack of transparency over the findings from the review. Submitted bids often pass into the void never to return - like some sort of supermassive, bureaucratic blackhole.
Proper feedback and scoring across all components of the five case model is a simple fix to improve the quality of bids - allowing further project development time to be best spent on improving weaknesses. We hope the civil servants reading this appreciate this particular recommendation. Calling for more paperwork, please!
A new edition for a new politics
Six months is a long time in politics. When Labour came in last summer everyone assumed a second term was guaranteed. But as the spectre of Reform continues to grow, volatile global markets, and the recent tendency of voters in the west to give incumbents a kicking at the polls, it looks like Labour have woken up to the reality they need to deliver tangible change quickly, or face the consequences.
To grow the economy, hamstrung by their own fiscal rules, they are looking at every technical and regulatory lever within grasp. A new edition to the HMT Green Book could provide a subtle, but sizable lever. But only if it’s done right. Prioritising the long term outcomes, ending backfilling, more strategic rationale, more research, realistic deadlines and proper feedback are six simple tweaks that could go a long way.