The chancellor’s decision to rewrite the “Green Book,” the Treasury’s guide for assessing whether government projects are good value for money, has generally been welcomed as a way to correct a supposed bias against less prosperous areas. It was argued that if you value a project primarily on how much it will increase GDP, that inevitably benefits areas where productivity and GDP per capita are already high—further tilting the playing field, instead of levelling up.
But, as we emerge from the pandemic, is the government really trying to ensure a more equitable distribution of public spending? In fact, the main charge against the Green Book doesn’t really add up.
Marginal returns, which are what matter, are not the same as average returns: it’s perfectly possible, even likely, for a transport project or an investment subsidy to be better value for money—even in purely financial terms—in a currently underserved or underdeveloped area than in one which already has good transport links or plenty of jobs.
In any event, as I explained here, the existing Green Book already focused on “social value,” not GDP. Indeed, it was explicitly possible to take into account the fact that an area had high unemployment, say, when assessing the impact of a project that would create new jobs, or to value policies that would help poor people more than those that would help the rich.
So what’s really going on? A careful reading of the government’s review of the Green Book suggests that the changes are directed less at improving the way “social value” is calculated (although there are some useful technical changes) and more at downplaying the role of objective economic calculations in the first place.
The review concluded that “one of the fundamental issues… identified is the common failure of those writing appraisals to engage properly with the strategic context in which their proposal sits.” It uses the word “strategic” no fewer than 62 times, mostly in connection with an injunction to those appraising projects to pay more attention to the “strategic context” and, by implication, less to actual costs and benefits that can be quantified.
It’s hard to argue in principle against being more “strategic”; but equally, it’s pretty obvious to a cynical civil servant what this means. Less attention to economics, and more to politics; less emphasis on an attempt to, however imperfectly, make an objective appraisal of the costs and benefits of individual projects, and more on their contribution to the government’s overall political agenda.
Nor did it take long to see what this means in practice. The “Levelling Up” fund, announced in the March Budget, directed money based on a set of metrics which included commuting distances and empty housing, rather than deprivation or poverty. This resulted in the chancellor’s own, rather prosperous constituency (and that of the housing minister) scoring higher than Barnsley or Salford.
This may fit with the “strategic context” of government policy, but it’s very hard to see how it would pass any sort of conventional cost-benefit test that attempted to assess the “social value” of funding aimed at “levelling up.”
Of course there is nothing new about pork-barrel politics. But the blatant and systematic nature of its practice under this government is unprecedented—see, for example, this leaflet from the Chesham and Amersham by-election. And while the impact of specific schemes like the Levelling Up Fund (or the highly controversial Towns Fund, skewed to benefit Conservative constituencies) is limited, the effect on the government’s overall approach to spending is not.
Somewhat paradoxically, this can be seen in the government’s extraordinary decision to reject Kevan Collins’s proposals for a £15bn education recovery programme, to make up some of the damage done by the pandemic. This clearly wasn’t because, as some briefing suggested, there wasn’t enough evidence to support his proposals. Counter-arguments of this kind are, as the UK’s leading education economist Simon Burgess points out, spurious. Any attempt to apply Green Book principles (either the new or the old edition) would certainly have found the package to represent value for money.
So it’s tempting to simply put this down to the Treasury reasserting its position as the guardian of the public purse, after a year in which spending control has—by necessity—largely gone out the window. As Paul Johnson, Director of the Institute for Fiscal Studies, put it (answering the rhetorical question “why is the Treasury such a bunch of bastards?”), “If the Treasury acquiesced in every spending proposal coming from the rest of Whitehall, we would soon be bankrupt. That’s its job, and all power to it in carrying it out.”
In other words, the Treasury just has to say no sometimes, if only to remind everyone else that resources are limited. But why did it say no to Collins, yet not to far more dubious spending proposals elsewhere? That is a sign of weakness, not strength; if the Treasury were more confident in its ability to turn down spending proposals that aren’t good value for money, it would be able to say yes to ones that fairly obviously are. This is not a good omen for the difficult choices that will need to be made over tax and spending in the post-pandemic recovery; bad news for the Treasury, but also for the rest of us.
