Stephen Hughes

Even after Coronavirus has been resolved, the Government faces significant economic and social challenges. Meeting net zero carbon emissions by 2050, closing the economic gap to those left behind and massive infrastructure investments to improve productivity are urgent tasks.

Getting it done is primarily about political will, but Government is complex, and it helps if the internal drivers for action are aligned with the direction of political will. Otherwise usual practice can override and frustrate the policy priorities.

To this end, it seems that the rules of the Treasury’s “Green Book” are worth examining in detail. The Green Book sets the framework through which all significant public spending proposals are evaluated. The rules are critical in determining what does go ahead and what is blocked.

Here I want to provides an introductory look as to what might need to be changed in the Green Book rules to help deliver the new key priorities of Government. The discussion here is drawn from a longer, more in-depth report, which can be accessed by clicking here.

At its heart, the Green Book uses orthodox neo-classical static equilibrium analysis, aiming to maximise collective “utility” as revealed by market prices as a measure of societal value. It is an excellent tool for deciding between marginal projects set in a fixed landscape, but how well can it manage changes that are designed to change the equilibrium?

To tackle current weaknesses and to help better deliver the policy priorities I conclude that the Green Book and associated guidance should be amended in six main ways:

1. As evaluation methodology is inherently value laden, set out clearly that the purpose of evaluation is to help deliver transformational change for the economy, reduce income and wealth inequality between groups and regions, and deliver a sustainable environment including meeting carbon reduction targets.
2. Expand the viability testing of projects to include tests for a sustainable environment as well as public sector finances.
3. Ensure that projects are not evaluated in isolation from the contribution from all projects and programmes that impact on the social objective being pursued, so its value and priority is seen in the context all alternatives. This process will test the assumption that only additional spending is required to achieve improvement, when changing the structure and use of existing programmes may deliver outcomes more effectively.
4. In order to assess intergenerational equity, include assessments as a comparator that as appropriate either exclude discount rates or demonstrate no deterioration in the environmental balance sheet.
5. Include a methodology for assessing the quality of evaluations and business cases in order to test how well projects meet the objectives as an additional challenge to the viability tests.
6. Get better use of the commercial and management tools available and assess how well this has been achieved in order to reduce the failure rate of public projects.

In addition, a new Government should consider other changes to the way policy is developed and evaluated, especially:

1. Requiring all public spending, capital and revenue (not just new programmes and projects) to be subjected to the new evaluation criteria (transformational change, greater equity and environmental sustainability) to test its fitness for purpose. Ensuring that current projects are tested as well as future ones.
2. Making allocations of new infrastructure funds conditional on a review of existing spend to ensure that it also prioritises the new objectives.
3. Create carbon budgets for every Government Department for both their own spend and for those parts of the economy they are responsible for. These can be used to test environmental viability with the same absolute rigour that applies to funding.
4. Create or consolidate central support resources, to provide critical technical advice on the use and application of new evaluation techniques, to assess the quality of their application and to ensure that proper commercial considerations have been built into project design and delivery.

Here I have provided an introductory look as to what might need to be changed in the Green Book rules to help deliver the new key priorities of Government. I hope it stimulates debate and helps make the needed changes, as the issues we are concerned about are urgent and can’t wait.

 

Stephen Hughes is the former Chief Executive of Birmingham City Council. He has worked at local government associations and run finances at Islington, Brent and Birmingham. Since leaving Birmingham he has been a consultant and is currently a Non-Executive Director at HS2, the VOA and chairs Housing 21, and Associate at INLOGOV.