Way back in time – well, in December – we at the Future Governance Forum published a report on the Treasury’s Green Book: what it is, why it needs to change and some warnings about how far those changes could take us on their own when it comes to allocating government investment more sensibly around Britain. Fast forward a couple of months and the government has now published its new version of the Green Book, and it appears to have taken on board a lot of things we (along with others) have called for.
This redrafted Green Book is the result of a review commissioned by chancellor Rachel Reeves. When she announced the review in January 2025, it was clear that she wanted it to respond to fears that the existing methodology was not helping to tackle regional imbalances in the UK, and that it underplayed the case for investments that could be transformational for a place.
FGF strongly agrees with the need to address those issues in the British economy. And while we never saw a Green Book revision as the major or complete answer; arguing for it to sit alongside further devolution and muscular, regionally-focused industrial policy – our December report did advocate some changes we thought would help.
So it is very welcome to see the new Green Book making various changes that should in aggregate create an appraisal system that is fair to (good) projects outside London and the South East.
Crucial among these is downplaying the dominance of the simple benefit cost ratio (BCR), which has come to dominate thinking when it comes to approving public investment, and which critics – including us – argue can take too narrow a perspective. Instead, the new Green Book states very clearly that investment decisions should no longer be based solely on BCRs: ‘Practitioners should not make judgements on value for money using BCR thresholds… a proposal with a BCR of less than one may still represent value for money’.
Although I should also say, as an ex-Treasury apparatchik, that I am also pleased to see the rider that: ‘Proposals with relatively low BCRs should be subject to rigorous scrutiny to ensure that they do indeed represent value for money.’ We will always have limited funds and not all projects can be funded.
Perhaps even more important was FGF’s recommendation that the strategic, outcome-focused and place-based case for an investment be given far more prominence. This is rather than artificially comparing projects across regions, as if the impact of a project in one place would be identical to it being carried out somewhere else. Again, this has been taken on board in the new Green Book: ‘Summary metrics of social value should only be used for comparing different options to meet the same objectives’. And the press release launching the new Green Book is even more emphatic on this point, saying that it makes sure ‘these metrics are not wrongly used to compare investment choices across different regions or between urban, rural and coastal communities.’
Various other changes help too. There is more of a nod towards prioritising the pursuit of genuinely transformational projects (which can be harder to quantify in precise terms). Here, the ‘downgrading’ of the BCR will help, as will the requirement to have a better-articulated theory of change for potential investments and to think more thoroughly about non-monetisable benefits.
A greater emphasis on place, and clearer guidance to look at a number of place-based interventions in the round, is welcome: “Transformational change is rarely brought about by individual projects or programmes. It often requires a portfolio of programmes and projects. It is therefore not meaningful to divide the social value of the whole portfolio into its constituent projects and programmes.”
A stronger steer to look at the distributional consequences of projects – and to use distributional weighting where relevant, acknowledging that the impact of investment can be felt differently by different groups within the population – should also help.
Finally, in our report we noted that the Green Book guidance was so long and complex that mere mortals could not really follow it. So it is encouraging to see that the new version is shorter (although still a pretty full read!) and that it proposes more proportionate appraisal processes for smaller authorities.
There are other changes too and all round – with the review of the discount rate still to report – this should be a better Green Book. How it plays out in the country and in practice is still to be seen. For that, we need more than just changes to the rules of the game. As we have repeatedly argued, the key to seeing more productive investment in all parts of the country is political will – in Westminster and Whitehall, but also increasingly over time in Mayoral Combined Authorities as decision-making powers (and potentially revenue-raising abilities) move closer to places themselves.
Dan Corry is the Future Governance Forum’s chief economist, and a former senior adviser to the Prime Minister on the Economy from 2007 to 2010