Britain is to ease the rules used to assess major public infrastructure projects by cutting the government’s discount rate from 3.5% to 3%, in a move designed to encourage investment across the country.
The change, announced by the Treasury on Friday 4 September, will affect the Green Book, the government’s guidance for judging the costs and benefits of capital projects. It is intended to give transport, housing and social infrastructure schemes greater recognition when their benefits take years to emerge.
Discounting reduces the present value of future costs and benefits, meaning that a benefit expected decades from now carries less weight than one delivered immediately. A lower rate narrows that gap and could make longer-term projects appear more beneficial in official assessments.
The Treasury said the reform would help ensure that major schemes receive a “fairer hearing” in spending decisions. The government is also testing a place-based approach, assessing the wider economic potential of areas rather than considering projects individually.
Pilots are under way in Plymouth, Liverpool, Birmingham and Port Talbot. The approach is intended to take account of wider effects such as jobs, housing, skills, local growth and the economic impact of connected investments.
The changes build on the revised Green Book published in February, which moved away from relying solely on headline benefit-cost ratios when comparing projects. The Treasury has also pledged to publish business cases for major schemes more consistently and said the reforms would support mayors in using £900 million of local growth funding over the next four years.
Full details, including the government’s response to an independent review of the discount rate, are expected to be set out at the Budget on 28 October. Finance minister John Healey is also expected to outline the plans in his first major speech in the role on Monday.
