Blog by Honorary Professor in the Adam Smith Business School and Emeritus Professor of Economics at the University of Stirling Dr David Bell

The title of this piece doesn’t excite I suspect. But the changes to the so-called “Green Book” in yesterday’s Spending Review will have profound consequences for the way that government investment spending is allocated in the future. The Green Book is HM Treasury’s investment Bible. It largely determines which public sector projects UK Government is willing to back and those which should seek funding elsewhere.

There has long been dissatisfaction with the way the Green Book methodology calculates the cost and benefits of projects. Some measurements are genuinely difficult because there is no market and therefore no prices to help calibrate costs or benefits. For example, assessing projects with significant environmental effects is extremely challenging. There are generally no markets for environmental capital. Setting a value on clean air or beautiful scenery that can be entered into a cost-benefit calculation is not easy.

But the more pressing concerns have been around the way that the Green Book has subtly favoured projects in the South-East of England. For example, in assessing the benefits of transport projects which saved travelling time, the old Green Book placed a higher value on the time of those living in the South-East. Why? Because wage rates are higher in the South-East than in other parts of England. For large projects, whose benefits would be realised over many years, such as the cross-London Elizabeth line, these differences in the valuation of time could easily push projects from the South-East to the top of the priority list.

Under the new version of the Green Book, the Treasury will no longer rank projects on how much their projected benefits exceeds their projected costs. This new version emphasises the role of “place”. Thus, instead of treating project applications separately, sponsoring departments will have to consider how a combination of projects such as transport and housing will jointly affect communities.

There will also be a review of the “discount rate”, which is central to the Treasury view ofdealing with costs and benefits that occur at different points in time - or how much we value the future against the present. It is argued that the current rate unfairly biases decisions against transformational change which will mainly benefit future generations. Action on climate change clearly falls into this category.

There will also be action to simplify and shorten the Green Book, hopefully simplifying it so that it is accessible to a wider audience. Hopefully this will also enable bodies submitting projects to simplify their case for support, and save them mountains of consultancy fees. UK Government is going to work with the Welsh Government to improve the quality of the business cases it presents. The National Wealth Fund is also going to help bodies with project development support.

So what is the import of all this esoteric manoeuvring? The Green Book and the Levelling Up agenda never sat well together. Raising the quality of public infrastructure in the North of England to the same standards as that enjoyed in the South-East was never going to happen so long as the Green Book orthodoxy favoured projects in the South-East. So the hidden agenda behind the Chancellor’s proposed changes to the Green Book is to shift public capital spending in England further north by arguing for the “place-based” benefits such investment would bring.

So how does this affect Scotland? The devolved parliaments have their own capital budgets and therefore projects north of the border are not generally in competition with capital funding for projects in England. However, the Scottish Government itself must prioritise projects within Scotland, and it generally applies the Green Book to evaluate such projects. Indeed the Green Book is referenced in the Scottish Public Finance Manual, though it is not clear that the Scottish Government was consulted over the changes announced yesterday.Scottish Government will have to take the new version of board however. Funding schemes where both the UK and Scottish Governments are involved, such as the City Deals, will have to follow the rules set by the new Green Book.  

Choosing between capital projects is not an exact science. Value judgements are inevitably part of the mix. The new Green Book place-based approach may change how value is calculated, but ultimately, either implicitly through the rules, or explicitly by direct political intervention, choices are made that prioritise some groups over others.  For example, the Green Book was not cited in the Scottish Government’s case for providing £14.2m to support Ferguson Marine. Instead, appeal was made to the National Performance Framework, theNational Strategy for Economic Transformation and the Programme for Government as justifications for this state intervention, without any clear evidence of how these policieswould consequently be progressed. Ironically, the Framework Agreement with the Scottish Government requires the Fergusons executive team to use Green Book appraisal techniques to assess their own investment decisions.

Within Scotland, following the new Green Book is likely to favour locations where comprehensive development plans can be put in place. This would imply greater reliance on working across co-located public sector organisations, even though they may have different governance structures and also across spatial boundaries that artificially inhibit important infrastructure developments.

 

Author

Dr David Bell is a Honorary Professor in the Adam Smith Business School and Emeritus Professor of Economics at the University of Stirling

Preview image by John Gomez on Shutterstock

First published: 18 June 2025

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