Business Cases and Place-Based Funding – Local Policy Innovation Partnership Hub

Alice Pugh discusses her recent report exploring how sub-national institutions apply the HM Treasury Green Book’s Better Business Case model when bidding for place-based economic development funding.

View the report

Context and Methodology

This report critically examines the application of the Better Business Case Green Book model by practitioners when seeking to secure past place-based economic development funding. The business case framework is used to appraise and manage the development of an intervention, as set out in the HM Treasury’s Green Book guidance (HM Treasury, 2022). A business case brings together and summarises the results of all necessary research and analysis required to support decision-making in a transparent manner (Pugh, 2024.b).

This report systematically reviews and analyses evidence within 134 business cases developed by sub-national institutions submitted to 3 place-based economic development funds. Drawing on HM Treasury’s Green Book guidance, the report evaluates the quality of business case construction and appraisal, particularly in relation to the development of specific, measurable, achievable, realistic, time-sensitive (SMART) objectives, place-based value-for-money assessments, and systemic biases in funding methodologies.

Key Questions

This report seeks to answer the following questions:

To what extent do place-based business cases demonstrate SMART objectives aligned with local economic needs?
How effectively do business cases incorporate place-based appraisal in their value for money assessments?
Is Green Book’s business case methodology systematically geographically biased?

Key Findings

SMART Objectives: In the bids reviewed, only a small proportion of business cases include SMART outputs (13.4%) and outcomes (2.2%), as outlined by the Green Book appraisal guidance. Most submissions lacked specificity, measurability, and time-bound targets. This can undermine strategic coherence, public value for money and evaluability as well as output definition.

Place-based appraisal: Value for money assessments generally failed to incorporate place analysis in the business cases reviewed. This omission risks misrepresenting or missing out on the true impact of interventions on local and regional economies.

Geographical Bias: While London-based interventions on average have a higher benefit-cost ratio, due to the methodologies utilised, across the place-based funding streams, generally, funding is more equitably distributed. London received only around 3.3% of total funding, whilst Yorkshire and the Humber received the most across the funds at 15.8%, across all successfully funded projects through the three funds reviewed in this report.

Capacity and Capability: Sub-national institutions face significant challenges in developing robust business cases due to limited resources, training challenges and over-reliance on consultants. This has led to a cycle of dependency and weakened institutional expertise.

Process Challenges: Several process challenges are hindering the development of high-quality place-based business cases, including competitive funding, lack of transparency in appraising, short-term bidding processes and contradictions between local and national priorities. Greater consideration needs to be taken when developing place-based funds and modelled similarly to more successful iterative and supportive funds, such as the Towns Fund.

Recommendations

To develop a more coherent and supportive ecosystem for place-based funding that can better support inclusive and sustainable local economic development, the following recommendations should be considered:

Central Government

Enhance place-based capacity and capability

Accessible training: Central government needs to reform public sector Better Business Case training to improve its quality and accessibility. Central government and/or an arm’s length body, with support from HM Treasury, should provide training for sub-national government officers, boosting participation in training and better aligning cases with Green Book principles. Increased accessibility to training should lead to improvements in developing business cases and enhancing appraiser skills.

Regional support hubs: Regional centres of excellence or technical support hubs should be established, bringing together appraisal experts to offer advice and guidance to those who do not do business cases on a regular basis. These centres or hubs should offer practical support through tailored services and expertise on developing robust strategic and economic cases, significantly improving the capability and capacity in place.

Transparent modelling: Modelling methodologies, evidence and assumptions in relation to value for money assessments should be transparently disclosed to the wider public within business cases. Making economic models transparent will foster greater transparency and improve capabilities, as users strengthen their assessments by learning from the methodologies applied in the modelling of similar initiatives.

Review of Business Cases: HM Treasury should routinely review business cases to assess improvements in quality in regard to alignment with the Green Book. This ongoing review would provide insights into effectiveness and help refine guidance, ensuring future business cases are more robust and fit for purpose.

Place-based Business Cases

Align with economic development plans: Business cases for place-based funding should be aligned with regional and/or local economic development plans. Aligning business cases with local economic development plans will enable sub-national officers to develop place-based business cases to meet the specific needs of their locality, rather than attempting to interpret broad central government objectives.

Place-based appraisal in value for money assessments: Place analysis, in the place-based business case value for money assessments, should be a mandatory consideration to prevent the overestimation of the impact of initiatives on place. To support this, clear guidance should be developed on the use of place-based analysis. This includes examples of application to help officers better understand where and when place analysis is applicable and the appropriate metrics to apply.

Place-Based Funds

Application process: The Towns Fund and Pride in Place Fund offer a more supportive application process through place-based specific strategies, co-development with MHCLG, extended timelines, allocative funding, and proportionate use of business cases, creating a more effective and inclusive environment for local economic development. The learnings from the application processes for these funds should be taken forward in future place-based funds.

Competitive funding: Competitive funding at a place-based level should also be used when there is a clear need (as set out in the Green Book). Competitive funding is too resource-intensive for combined and local authorities that may not ultimately win funding. Allocative funding should be the preferred model of funding, where funding is distributed based on a clear justification of need through a robust business case.

Short-termism: Short bidding windows are difficult to deliver for place-based funding, which tends to be complex and needs collaboration. Phased and co-created approaches to funding should be adopted, allowing time for stakeholder engagement and iterative development. Feedback loops should be embedded into the different stages of the business case development process, providing greater opportunity for sub-national officer to improve their bids based on expert guidance.

Publish fund business cases: Alongside fund proposals, government departments should also be publishing the full business case for new funds. Publishing the business case for the fund would remove the opaqueness around the government’s objectives, required outputs and outcomes and allow officers in place-based institutions to develop robust SMART outputs and outcomes that better meet the objectives of central government.

Clarity on the use of business cases: Greater clarity and guidance are required to demonstrate when the business case framework for bid application to funds is appropriate. Departments need clear guidance on when the business case methodology is appropriate, depending on the size and scale of the fund. This includes details as to when it is appropriate to ask for an outline or a full business case.

Subnational Government

Investment in training

Better Business Case training: Local and combined authorities should allocate budget and time for staff to complete Better Business Case training. Where funding is a constraint, seeking partnerships with a wider stakeholder network can help in subsidising costs.

Engagement

Engage in dialogue with central government: In England, combined and strategic Authorities should join the Green Book User Group to engage central government on the challenges that users face at a sub-national level. Joining the Green Book Group would provide users outside of central government with an outlet to more effectively advise on the business case process and wider Green Book guidance.

Business Case Networks: Local and combined authorities should advocate for the establishment of Business Case networks or peer learning groups. These could be formed as regional networks, where practitioners, appraisal experts and technical experts link together to share appraisal methodologies, lessons learnt and discuss challenges. These networks, as a result, could lead to growing capacity and capabilities at a sub-national governance level.

Evaluation

Evaluating initiatives: Sub-national institutions need to ensure that they are appropriately and proportionately evaluating their place-based economic development initiatives. Sub-national institutions need to embed the cost of evaluations into business cases for initiatives and the resulting funding allocated. This will build a stronger evidence base of what works in place-based economic development, leading to better-informed, evidence-based future initiatives.