Why this week’s Green Book rule changes could help ‘level up’ the North

Tuesday 24th November 2020

The North of England has been held back by decades of underinvestment. Chancellor Rishi Sunak is this week expected to unveil changes to the way HM Treasury assesses projects for public funding. Could it set our region on the path to build back better?  By Tim Foster, Transport for the North’s Head of Policy, Strategy, Economics and Research.

It’s no secret the North has historically received less funding than the South. Analysis of projects over the decades has revealed a systemic imbalance in the way decisions are made have exacerbated the much-reported divide.

This has to change if the Government is to realise its ambitious, and much-needed, ‘levelling up’ agenda, and set the people and businesses of the North on the way to sustainable, greener growth.

Recent months have seen a number of key projects given the go-ahead by Government. That investment is very welcome, but it isn’t only about committing to our essential projects now – whether that’s key strategic road projects like dualling the A66, building major new rail lines such as Northern Powerhouse Rail, or the smaller short-term projects that make such a difference to people’s daily lives.

Changing the Green Book could see a fundamental shift in the way transport projects are assessed, in order to give the North the long-term sustainable pipeline of investment needed to unlock its potential.

Enter the Government, Northern MP, and now-Chancellor Rishi Sunak, who has made welcome pledges to not only support an infrastructure revolution with project funding pledges, but also to revisit the way decisions are made.

The Green Book sets out the guiding rules for how HM Treasury appraises decisions and projects that require public funding.

Quite simply, it isn’t working outside of London and the South. The current system – skewed towards return on investment – can reinforce regional inequality and make it harder to justify investment in areas already underperforming economically.

The hot economies get hotter, whilst the areas in need of intervention can struggle to demonstrate a return (in monetary terms). With an over reliance on Benefit Cost Ratios (BCRs) figures, the current process means some communities in the North would always struggle to meet the magic number to unlock the keys to infrastructure funding.

The methodology tends to reward these short-term returns by discounting long-term ‘income streams’, and rewarding already thriving places but more importantly has a tendency to downplay the fact that individual projects create wider and longer lasting societal benefits.

Change is needed if we are to move towards a model that sees the UK as a set of interlinked urban economic hubs with different growth potentials, where growth in one place does not just take away from another.

The Chancellor’s decision to re-write these rules is expected to accompany this week’s Spending Review, with ‘levelling-up’ the central motivation.

We believe, alongside commitments to devolve decision-making, there are five key areas to watch out for this week:

• Define what ‘levelling up’ means and what is required to achieve it, then embed it into investment decisions at all levels of Government. This could create a more streamlined system that redirects resources, at pace, to where they are most needed.
• Tackle the inherent inequalities in the Green Book, creating a fairer appraisal system that meets the needs of the next century and beyond. Two possible changes:
  – Modernise the rules on “additionality” so that improving economic outcomes in one area do not always result in lower outcomes elsewhere.
  – There should be less focus on benefit-cost-ratios (BCRs) and more emphasis on the wider impacts of transport investment (be they social, regeneration, connectivity, decarbonisation and other opportunities), with economic case as a significant but not deciding factor.
• Put people and places at the heart of investment decisions. An approach that recognises that decisions are better taken at local level based on better intelligence and local needs. Transport for the North’s ground-breaking work on Northern Powerhouse Rail and our Strategic Development Corridors demonstrates how to combine local priorities and circumstances with national and regional approaches.
• Greater consistency of appraisal and decision-making across Government, and a fairer simpler process for devolved and local bodies. In the North, Transport for the North can work with DfT and our partner authorities towards a single analytical framework and Northern appraisal system.
• Greater devolution of funding and decision-making. That could allow a joined-up approach at a regional and local level.

Reforming the Green Book approach, and how it is used, can encourage better decision-making in Government on national infrastructure projects, and support the delivery of social and economic change at regional and local level.

Transport for the North has anticipated that reform is essential, investing in powerful analytical tools that can present both the old ways of appraisal in the current Green Book, as well as the full transformational potential of strategic transport investment to the Northern economy and local communities across the North against a range of potential future scenarios.

Our ground-breaking analytical framework means we are well prepared to respond to any changes announced this week.

That said, any technical changes to the appraisal rules will only work if accompanied by wider shifts in investment decision-making.

These changes could make a significant difference to our region by not only giving vital projects the thumbs-up, but also by involving our leaders in the decision-making process and taking into account our varied communities and regional economies.

We await the Green Book announcement with great interest.