In arguments about government funding, the Treasury’s Green Book – its guidance for appraising the cases for individual projects – has long been singled out by critics. It has been “tilting the playing field against areas like ours,” according to Liverpool city region Mayor Steve Rotherham. In a Westminster Hall debate in April, MPs for seats outside the capital queued up to condemn the Green Book’s “hardwired” London bias, “baking in regional inequality”.
The new government promised to investigate, and Rachel Reeves threw some red meat to complainants when announcing the findings of its probe alongside her Spending Review. “I have heard the concerns,” she said. “They are right.” A new Green Book, she said, would be make sure that “no region has Treasury guidance wielded against them”.
One problem though; the investigation actually found no “conclusive evidence” that the Green Book, particularly its much-criticised Benefit Cost Ratio (BCR) formula, which measures the cost of a scheme against its “monetisable” benefits – put simply, its value for money – “systematically” favoured London and the South East.
It wasn’t the first such finding. The previous government’s 2020 review reached the same conclusion, as did an analysis by the Centre for Cities think tank in the same year. And a new Centre for Cities commentary by London School of Economics Professor Henry Overman, a member of the external panel set up by the Treasury to scrutinise its latest review, bluntly confirms the general expert view, that claims of Green Book bias are generally “nonsensical.”
The review itself was bullish too. The Green Book, it said, had been praised as “comprehensive, evidence-based and objective” and was “recognised internationally as an example of good practice”. What was required was simply “greater clarity” that government funding decisions were not made on the basis of BCR rankings alone.
Its key point, perhaps, was that “ministers and other decision makers” make spending decisions, not the Green Book itself. As Treasury minister Torsten Bell said in the Westminster Hall debate, “It is ultimately for government, both national and regional, to decide. We must not evade our responsibilities behind technical frameworks.”
Nevertheless the Treasury will be rewriting the Green Book. Significant changes include introducing new “place-based” business cases and a new focus on how to assess the impact of “transformational” schemes that aim to produce large-scale economic growth. Think HS2 or Northern Powerhouse Rail.
Should London, already feeling hard done by, be worried, particularly with the government continuing to highlight “deep regional inequalities” and the need to ensure “all regions get a fair hearing”, as Bell said in the Westminster Hall debate?
Perhaps not so much.
The “place-based” approach will assess all the projects needed to achieve the objectives of a particular location, such as housing and transport schemes. These, the review says, are “often mutually reinforcing and greater than the sum of their parts” – benefits it accepts are not always captured by conventional appraisal. Might the Docklands Light Railway extension to Thamesmead, potentially unlocking 30,000 new homes and 10,000 jobs, fit that bill?
The approach to “transformational” schemes, aiming at long-term change on a bigger scale, is similar, seeking to “articulate the ‘size of the prize’ of achieving growth in a particular area”, including the “complementarities” between different projects and their impact on “jobs, infrastructure, skills and supply chains, as well as on social capital and the environment”.
Interestingly for London, the review promises to build on recent Department for Transport (DfT) analysis of “transformational” schemes, which found that the 1999 Jubilee line extension not only contributed to the success of Canary Wharf but boosted employment, productivity growth and new housing along its whole route, despite originally failing its value for money test.
That scheme was approved in any event. By 2003, its BCR was up to 1.75 to 1, meaning that £1.75 of value were generated for each £1 that had been invested. More recently, that ratio had risen to 3 to 1. Without it, a separate analysis suggests, development in the City would have stalled and high-paying jobs would have gone to other countries. As the DfT concluded, “traditional cost-benefit appraisal may underplay benefits of this nature for such schemes”.
There are more recent examples, too: the Elizabeth line, with an original BCR of 1.7 to 1, is now up to 1.9 to 1, with a £42 billion contribution to the UK economy in its first two years; and the Northern line extension to Battersea. The transport case for that scheme was weak, but recognising its critical contribution to the development of the Vauxhall, Nine Elms and Battersea opportunity area resulted in a BCR of 8.2 to 1.
A reformed Green Book could support similar success stories, according to Professor Overman. “A coordinated set of housing, transport and other investment projects could do a lot to ‘transform’ London’s economic performance and help it catch up with the higher levels of productivity seen in the most productive European cities,” he says in his Centre for Cities comments.
The review’s embrace of joint working across Whitehall and regional government may offer another opportunity for London as it negotiates its promised multi-year “single pot” funding settlement and looks to take forward more public-private financing arrangements similar to those used for the Elizabeth line and Northern line schemes.
As the review itself concludes, though, it’s all about the politics. Much depends not only on how well the capital makes its case, but on whether the government’ s commitment to, in Bell’s words, bring to “growth in every part of the country” includes its capital city.
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