Alice Pugh discusses how best to use the Green Book when developing place-based interventions.
The Green Book is a guide issued by HM Treasury on how to appraise policies, programmes and projects. It is not a mechanical or deterministic decision-making device. It is a guide which provides a framework, thinking models and methods to enable decision-makers to clarify the social and public welfare costs, benefits and trade-offs of alternative options to tackle problems, challenges and market failures that decision-makers face.
The main approach within the Green Book is the five-case business case model, made up of the Strategic, Economic, Financial, Commercial and Management cases. The model is the required framework for considering the use of public resources to be used proportionately to the cost and risks involved, whilst taking into account the context in which a decision is set to be taken. It is a management tool which helps decision makers to develop and appraise project/programme/policy, to make the best evidence-based decisions when attempting to tackle problems, challenges and/or market failures.
City-REDI review of the Green Book
Historically there have been several criticisms levied against the guidance, and these often impact how the guidance is utilised. These challenges are well-documented, including within City-REDI research, and summarised within the 2020 review of the Green Book. One of the main criticisms was that the Green Book was failing to provide adequate support in certain areas, such as place-based interventions in general.
The review found that appraisers were failing to properly carry out robust analysis of impacts in relation to place. In a review of successful business cases for place-based funding conducted by City-REDI in 2022, it was found that there was a lack of consideration for the impact of benefits on different geographical areas. Most business cases failed to appraise the impact of their project at a place-based level, instead focusing on the impact at a national level. Those that did focus on place-based impact within their cost-benefit analysis, failed to consider the negative impacts on place as well as the positive, neglecting to apply additionality factors to place-based cost-benefit analysis, such as leakages, displacement and substitution.
 | Leakages: How often does the intervention benefit others outside the target zone |
 | Substitution: How frequently a firm substitutes an activity for a similar one |
 | Displacement: How severely does the intervention impacts other local firms existing in the same market |
 | Multipliers: How much more economic activity is generated as a result of the intervention |
Adding Place into the Green Book
The updated Green Book in 2022 aimed to combat some of the issues around calculating impact at a place-based level by updating the place chapter. This provided greater detail as to how place-based projects should be appraised and the considerations that need to be made, particularly around cost-benefit analysis and value for money.
Part of the reason that many did not calculate place-based benefits and instead focused on the UK level was due to the preference of government departments. However, the guidance now clearly sets out that for place-based funds, appraisals need to consider the geographical impact of interventions. Enabling Business Case practitioners at City-REDI to calculate benefits, such as employment at a place level, when previously this would have been a challenge.
For example, City-REDI supported a successful bid for a £20m project, the National Centre for Decarbonisation of Heat (NCDH), to be funded through the Levelling Up fund. Part of the intervention was the employment that would be created or safeguarded through the delivery of the retrofitting of housing within Birmingham. The updated Green Book enabled the robust calculation of the benefits of this employment at a place-based level.
The ability to calculate such benefits as employment has been particularly important for revenue-based schemes. For instance, the NCDH included a large capital build that contributed the most benefit within the cost-benefit analysis. However, most revenue-based schemes, do not include large capital infrastructure investment. It has been exceedingly difficult to monetise benefits in the past and demonstrate value for money. The new guidance, however, enables these benefits to be more easily calculated. As an example, City-REDI recently supported a skills business case, for which the aim was to help unemployed graduates into employment. The new guidance and supplementary guidance enabled place-based employment and wellbeing calculations to be made.
Top tips for developing place interventions
- Whilst the cost-benefit analysis within the business case is important and it is positive that there is improved guidance, the economic case is not the only determining factor. The 2020 review of the Green Book found that the strategic case was also weak concerning place-based projects. There was a failure to develop well-defined place-based objectives and a robust explanation as to how the intervention itself would deliver the change required to meet said objectives. It is therefore essential to have a solid theory of change describing how the intervention will create transformational change, without this the economic case and cost-benefit modelling are redundant.
- Although it is important to consider the monestisable benefits of an intervention, it is equally important to include the non-monetisable benefits. For example, if an intervention is aimed at reducing crime or net zero, then it might be necessary to provide other types of analysis such as break-even analysis, over trying to attain a high cost-benefit ratio. In the case of these types of interventions, the story set out in the strategic case becomes increasingly important.
- It is important to remember that the business case is as important as the evaluation of the intervention. Without a strong business case, interventions are more likely to fail. Without a proper appraisal being conducted, there will not be the appropriate consideration of risks and costs, or an inappropriate intervention may be chosen but achieve inappropriate objectives.
- Finally, a business case is not a means to an end, it should not be viewed as a hurdle to tackle to get funding. It is a management and planning framework to be utilised when developing any intervention. As it helps project leads and partners develop strong and robust interventions for tackling market failures at a local level.
This blog was written by Alice Pugh, Policy and Data Analyst City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the author and not necessarily those of City-REDI / WMREDI or the University of Birmingham.