The Green Book should be a tool for mayors and other local leaders to choose between projects, not the Chancellor to choose between places.

In recent years the Treasury’s guide for making investment decisions, the Green Book, has been critiqued by city leaders, policymakers, and researchers. Many have argued its current design reinforces regional inequality and makes it harder to ‘level up’.

The focus of these critiques is the claim that the Green Book’s method of calculating Benefit Cost Ratios (BCRs), which estimate the value of potential investment, skews public spending towards London and other prosperous parts of the country.

However, this report finds that:

• BCRs themselves are not biased towards the Greater South East
• The economic case in which the BCRs are used is only one part of Treasury’s Business Case Guidance
• Problems arise long before any BCRs are calculated

What needs to change

This report then sets out the reforms needed at the national and local level to improve the Green Book and accomplish levelling up. It recommends:

1. The continued use and a simplification of Green Book appraisals. The Green Book should continue to be used to appraise policies at the local level. But there is a disparity in capacity between places to use the Green Book to develop business cases for investment. Many outsource this work to consultants, reducing transparency and making it harder for local government to build strong strategic cases for investment. The Green Book process itself needs:

• Simpler cost-benefit models to rebuild trust
• A standard toolbox of models defined by central government
• A public database of BCR appraisals for evaluation of models and proposals held by central government
• Far more Green Book analysis to be done by in-house local government economists rather than outsourced to consultants

2. The Government needs to define levelling up and set a strategic objective. If Britain’s most underperforming economies relative to their potential are to level up, they need to meet an objective. The eight largest cities outside London should aim to close a third of their output gap over the next 10 years relative to trend. If this were met, it would permanently add £16 billion a year to the national economy by 2030. A strategic case can be made for a £100 billion levelling-up fund over the next 10 years to accomplish this objective.

3. A strengthening of local government and greater self-reliance. Ultimately, debates about the Green Book emerge from within a centralised public sector funding model where higher BCRs for schemes are seen as a way to access additional investment via Whitehall. Creating a new system — where local authorities argue specifically for the investment needed in their area — requires a strengthening of local government and greater devolution, as Greater Manchester has already achieved.

4. In most local areas, the first priority should not be transport but skills, housing, or city centre commercial space. Though transport investment will play an important role, especially in many of the biggest cities such as Manchester and Birmingham, many places will need a wider mix of interventions than just transport.