Last week, HM Treasury published the Spending Review, setting the shape of public spending for the next three years. Civil servants across government will now begin writing business cases that will determine what will actually be done with the allocations agreed in order to deliver the government’s priorities.
In doing so, analysts will draw heavily on the Green Book – Treasury’s official guidance on “how to appraise policies, programmes and projects.” In the face of some criticism that the Green Book biases spending decisions towards London and the South East, the chancellor in January announced a review of the Green Book. The findings and recommendations were published alongside the Spending Review, following an extensive consultation process.
Nothing has yet changed: the Treasury has promised a revised Green Book in the new year. But the direction of travel is clearer. So what are some of the lessons that civil servants should be building into business cases being written now?
Help to make the case for place
It can be hard to consider portfolio effects when appraising individual policies. The review proposes ‘place-based’ business cases to assess options for a package of interventions designed to deliver localised benefits, which then underpin the strategic case for individual measures as part of the package.
This would be genuinely new and challenging, but with strong potential benefits for good policy-making. If targeted across different regions, place-based business cases could also help address concerns about the geographic focus of policy.
That said, the review is clear that particular technical concerns about how, for example, appraisals use time values and land value uplifts to monetise benefits do not inherently favour certain regions over others. This should give confidence to analysts in using those methods as part of the appraisal toolkit.
Combining new thinking on portfolio measures with the rigour of how to value impacts is a sensible approach, and something that departments have grappled with for some time. But some big challenges remain, namely:
Ownership: A place-based business case needs input from local, regional and national government. A new co-ordinating taskforce is proposed, led by high-ranking civil servants across Treasury, MHCLG and DfT. This engagement is welcome, suggesting significant buy-in and collaboration – critical enablers of success. Civil servants in these departments should start to engage widely with internal and external experts on how to operationalise this new taskforce effectively. However, clear lines of ownership and accountability will be important, ensuring delivery is led by people suitably expert to deliver coherent, high-quality analysis.
Evidence: The review rightly says that place-based business cases will need to be underpinned by a robust understanding of local conditions. This will require the strategic part of a place-based business case to be just that: a tailored and systemic assessment of how interventions can work together to address particular needs, rather than a collection of evidence of ‘what works’ for individual policies. Civil servants should start to consider how best to construct this strategic analysis, including drawing on past appraisals, the wealth of policy evaluations now collected in the Evaluation Task Force’s Evaluation Registry, and local expertise.
Bolster the economic case
Another strong theme in the review was the so-called ‘over-reliance’ on Benefit-Cost Ratios (BCRs) in the economic case in choosing which projects and programmes to fund. BCRs compare the value (in today’s terms) of costs and benefits that can be monetised for different options. The Treasury has committed to clarifying the role of BCRs in decision-making.
Clarification is welcome, but it will be important to keep the intended discipline and rigour of a cost-benefit assessment. BCRs provide a systematic and evidence-led consideration of the potential value for money of different policy options on a broadly comparable basis – essential to demonstrate good use of taxpayer money. They are not just a summary metric, but represent the output of serious analysis about the social and economic benefits of policy options.
The review should ideally be seen as an opportunity for practitioners to consider how to make the BCR as comprehensive and robust as possible. Opportunities to include more monetisable costs and benefits in a BCR should therefore be taken. This could include more widespread use of existing guidance, such as that on using wellbeing approaches, and improved sharing of valuation methods across departments.
It is critical to present a more holistic BCR alongside a careful analysis of non-monetisable benefits, costs and risks. There will always be more projects with strong BCRs than there is public money to pay for them. A comprehensive assessment is needed so that ministers can make more informed, evidence-led policy decisions.
Publish or be damned
A lack of transparency in business cases was highlighted in the review, which is now mandating that, for major projects and programmes, at least an outline business case should be published shortly after it is approved. The previous Green Book review made a similar recommendation, so follow-through is important.
Transparency is always welcome, improving opportunities to diffuse best practice. Civil servants could also improve the process of archiving the analysis, modelling and research that is done to underpin the business case. This need not be published, but should be available both for others in government to draw on and learn from, and to support policy evaluation. Testing whether assumptions made during the appraisal were borne out in practice as part of an impact evaluation will in turn improve the evidence base for future appraisals. This is a win-win.
Devil in the detail
Much of the detail is still to come. While promising to “radically simplify and shorten” the Green Book, the review also commits to new guidance on a range of issues, a common tension between the desire for simplicity and the need for some consistency.
The impact of any new Green Book on policy outcomes will not, though, be driven by the words on the page, but how it is understood and implemented by all of us working across government.
Andrew Leicester is a director and head of evaluation at Frontier Economics