Policy for appraisal of government projects in the United Kingdom

Article type: Research Article

Authors: Sinha, Mukund Kumar

Affiliations: Director - Planning, Ministry of Railways, Railway Board, New Delhi - 110 001

Note: [] Tel. 9971519645; E-mail [email protected]

Abstract: Efficient allocation of public funds towards creating national wealth and social benefits is one of the fundamental facets of good governance. Normally, funds are limited and the projects are many. There is a dilemma for decision makers to choose the projects. The broader decision criterion for the government is efficient allocation of funds. There is a need for policy guidelines for evaluating government projects and programmes. This paper studies and analyses the policy guidelines for appraisal of government projects and programmes in the United Kingdom. The H M Treasury in the United Kingdom has laid down the rules for appraisal of government projects in The Green Book. The circular mandates the use of CBA (cost–benefit analysis) for evaluating projects. Costs have to be calculated on principles of ‘opportunity cost’ and ‘shadow price of capital’. Benefits may be ascertained based on the principle of ‘willingness to pay’. The Green Book encourages the use of ‘risk assessment analysis’ and ‘sensitivity analysis’ to see the effects of various assumptions on the outcome. For a project to be viable, it should have a positive NPV (net present value) at constant pound. For competing options, the one with the highest NPV is the most viable option. The real discount rate prescribed for NPV is 3.5%. The Green Book applies to all government-funded programmes. A look at the appraisal system of the Department for Transport clearly brings out the adaptation of the appraisal policy strictly in line with The Green Book directives. The paper also undertakes an appraisal of Crossrail. This case study of Crossrail clearly brings out the implementation of the guidelines of The Green Book. It is seen that large transport projects, like the Crossrail, provides wider economic benefits of agglomeration, move to more productive jobs, and larger labour force participation. The Green Book is very exhaustive and encourages in-depth analysis for efficiency in resource allocation. However, there is a need for a more practical approach and standardization of as many impact values as are being encountered in previous CBA case studies. This would assist decision makers and ensure consistency in analysis, which is important from the point of efficiency principles. A look at the CBA case studies of Crossrail also brings out the lack of consistency in following the principles of appraisal laid down in The Green Book. Implementation of the provisions has to be ensured across all agencies.

DOI: 10.3233/IJR-120084

Journal: International Journal of Regulation and Governance, vol. 9, no. 1, pp. 41-63, 2009