Our Technical Director Graham James has provided expert commentary on the latest changes to the discount rate rules in the Treasury Green Book and the DfT’s Transport Analysis Guidance (TAG).
Graham’s analysis, in the 29 April issue of Local Transport Today (LTT), sets out the changes, their background, and what they will mean for transport scheme appraisal processes and benefit-cost ratios.
Discounting is the process of reducing the weight given to costs or benefits when they occur in the future rather than today. The further in the future they are, the more they are discounted. The Green Book’s ‘headline’ discount rates start at 1.5% per year for health-related impacts and 3.5% per year for all other impacts. The previous Green Book also asked for a sensitivity test, using a lower set of rates, in situations involving “irreversible wealth transfers between generations” such as long-term climate-change impacts. The latest Green Book has widened the use of this sensitivity test, to cover any appraisal with a time horizon beyond 50 years – which includes most major transport infrastructure projects. DfT has also incorporated the sensitivity test into the latest round of updates to TAG.
Graham’s article covers the original rationale for the test, how this meshes with appraisal of a project’s climate-change impacts, and the new rules’ potential impact on scheme business cases and decision-making. He considers how far the new guidance makes sense for transport projects, and some of the wider context around other potential changes to the discounting process.
LTT is the leading journal covering the UK’s transport policy, planning and delivery. It is available at https://lttmagazine.co.uk/edition/ for LTT subscribers or to purchase individual issues.