A Rising Tide Lifts all Boats:
21 December 2020

A Rising Tide Lifts all Boats:

Green Book Appraisal and Government Attempts to Level-Up

What is the Green Book?

The Green Book is Treasury’s guide to how all public sector spending decisions should be appraised and evaluated and sets how business case for investment should address five separate but interrelated elements; the strategic, economic, financial, commercial and management case.
In transport, its method is distilled down into TAG (Transport Analysis Guidance), the DfT’s toolkit for the development and assessment of bids for investment.

Significantly for those of us that work with Local Enterprise Partnerships and Combined Authorities, the Green Book (and TAG where appropriate) forms the basis of Assurance Frameworks; these govern the way devolved funding is invested and provides oversight back to central government that money is being disbursed appropriately.

Responding to criticism that the Green Book favours investment in larger, more populous and more prosperous areas (many in the south) over those less metropolitan areas (in the North), the Treasury has recently concluded a review into the extent to which the Green Book mitigated delivery of the Government’s ‘Levelling Up’ agenda.

The review found that whilst the Green Book methodology did not in itself skew investment in particular directions, its application may do so. This, it was claimed, was due to a failure of business case author’s to properly engage with the strategic drivers of their proposal; to consider why an intervention was necessary and to explain how it would contribute to the delivery of wider government policy. This led to an over-reliance on the development of the Benefit Cost Ratio (BCR) to judge between schemes, and of a tendency to overinflate the BCR by including spurious benefits which could not be quantified or were not certain (or even likely) to materialise.

So what’s the solution?

The Government’s response is to re-emphasise the importance of the Strategic Case when developing an investment proposal, and to place at the heart of any business case the development of a clear, logical and well-argued set of strategic objectives which demonstrate how the option will deliver on government policy. These objectives are to form the basis of the option generation process and only those options which deliver on the objectives can go forward for short-listing. In this way, an option which doesn’t deliver on the objectives can never be considered value for money, irrespective of its BCR.

The review also highlights that the economic case should draw in all relevant points from the other four cases, including those that cannot be easily quantified or monetised. As such, the economic case should demonstrate the social welfare value of the proposal in the round, including the wider social and environmental benefits, rather than being narrowly focused on achieving as high a BCR figure as possible. The purpose of the economic case is to capture all the benefits and costs of a proposal, not simply to generate a number.

New guidance on the evaluation and reporting of place based impacts has also been introduced, which makes clear that where an intervention has a definite geographical impact (as is the case in transport), the relevant geography should be the frame for the evaluating impacts, with UK-level impacts reported separately. Previously authors found it hard to make the case for changes in local employment or productivity as the Treasury argued that those impacts were merely redistributed from elsewhere in the country, with no net gain for the UK as a whole. New local employment multipliers and guidance on assessing and reporting distributional impacts should also make it easier to understand who exactly will be impacted by a proposal. The emphasis on place also makes it clear that local and regional strategies provide valid context for a proposal and can inform the development of objectives. This change should provide more scope for funding bodies, especially at the regional level, to determine investment priorities on the basis of their place-based agendas.

Are these changes enough?

The renewed emphasis on the importance of the Strategic Case and consideration of wider and non-monetised impacts places a greater focus on the ‘why’ of a proposal rather than the ‘how’ or the ‘what’. At SYSTRA we recognise the value of a strong strategic case and use logic mapping and decision trees to clearly draw the connections identifying the issue, analysing the logic of possible interventions, and articulating the anticipated impacts. But elsewhere they have hitherto been something of an afterthought; written at SOBC and revisited only cursorily as the proposal passes through its gateway reviews. From now on there will need to be a much stronger focus on identifying the problem and the rationale of the scheme and clearly demonstrating how it aligns with local priorities as well as national policies. It also places more emphasis on the option development and short-listing process that should mean a business case is not just a post-hoc justification of a decision already taken.

These changes should also have a trickle-down effect to local assurance frameworks, providing greater flexibility for those that hold the purse-strings at regional level to make more informed? investment decisions based on local strategies and need. In social psychology, the familiarity principle holds that we are attracted to what is familiar to us, and that repeated exposure to certain phenomena – people, places, or things - will increase our attraction toward them. With this in mind we should continue to call for continued devolution of funding and decision making away from Westminster and to locally elected and accountable decision makers who are familiar with an area and who are better able to engage with the arguments set out in a Strategic Case.

The changes to the Green Book were announced as part of the Comprehensive Spending Review, which also announced the introduction of a £4bn Levelling Up fund. With a prospectus to be published in the new year and a focus on driving growth and regeneration in places in need and that have received less government investment in recent years, it will be the first opportunity to see how this new approach will be played-out. Given the role that devolution can play in supporting levelling-up agenda in directing investment to meet locally assessed needs, we would encourage Government to play this policy out to its logical conclusion and to devolve responsibility for allocating funding to those areas with locally elected and locally accountable leaders who are most able to understand the strategic objectives that investment is looking to achieve.

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