The Green Book has never been so famous. As the Government’s commitment to ‘levelling up’ comes under scrutiny, accusations from MPs and lobby groups of ‘bias against the north’ have put the Treasury’s economic appraisal guidance into a spotlight usually reserved for controversial policy debates.
At What Works Growth we’re sceptical of these accusations. Our view is that the core economic methodology does not systematically understate benefits (or overstate costs) for projects outside London and the South East, and claims of bias directed at the economic calculations in the Green Book are wide of the mark.
But we have argued previously that there are other problems with the Green Book guidance, and the recent controversy has been useful in prompting a review of Green Book practices, published yesterday, which has highlighted some of these. The review concludes that while the core Green Book methodology does not “skew outcomes”, other current practice risks undermining the Government’s ambition to “level up”. It announces five changes to the wider process, two of which we think are particularly important for better assessment of area-based interventions.
First, it encourages a greater emphasis on the strategic objective of investments. A strategic case is already required by the Green Book, but there have been concerns that the focus on economic costs and benefits have often led to it being neglected. Whether or not this is the case, the new approach should help to ensure that economic comparison of options is done within the framework of a particular policy objective. So, if the policy objective is ‘levelling up’, then appraisal and comparison should focus only on options which are likely to deliver that objective.
Second, it requires place-based analysis for interventions focused on a particular area or type of area (allowing, where appropriate, for the use of ‘local multipliers’, developed by What Works Growth). This means that spending options can be directly compared using costs and benefits at the local level. Without this, while the strategic case should ensure the right types of projects are ‘longlisted’, comparison of options would still be based on national rather than local outcomes.
These changes have the potential to improve decision making around place-based investments. But they bring their own challenges for those who want to achieve ‘levelling up’ through better spending decisions.
A greater emphasis on the strategic case must be accompanied by increased scrutiny of the strategic case. This requires different skills to those needed for the economic analysis which is currently at the heart of the process. Government will need new ways of assessing whether a proposed option is a credible way to deliver the desired objective, including by drawing on evidence of what similar interventions have delivered in the past. Without this, the new focus on the strategic case could result in spending on ‘levelling up’ which delivers neither national nor local benefits.
Similarly, a more robust comparison of place-based costs and benefits will involve greater scrutiny of factors such as displacement, whereby the benefits of, say, a new shopping centre, are offset by closure of other shops nearby. Increased demand for this type of economic analysis in LAs, LEPs and combined authorities would be welcome, but might be hard to meet in the context of the Covid crisis and significant local authority cuts since 2010.
Both of these challenges are addressed in the review. HMT plan to provide more support and advice for those developing business cases, and improved training for those reviewing them, including a new user network which What Works Growth will contribute to.
These changes, and others announced yesterday, can facilitate the more strategic and evidence-based approach to ‘levelling up’ we need. But of course, that’s only the start. Developing the interventions and funding the investment which places need if they are to sustainably ‘level up’ remains a huge challenge.