Northern Transport, the Green Book, and BCRs.
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In early 2015, the UK’s Transport Minister Patrick McLoughlin wrote to his Permanent Secretary confirming that the old, inaccessible, and hated Pacer trains would be removed from service in North England and replaced with newer ones. His reasoning was clear in his letter, “I do not consider that the continued use of these uncomfortable and low quality vehicles is compatible with our vision for economic growth and prosperity in the north”.
Five and a half years later, the last Northern Pacer train to carry passengers rolled into Manchester Victoria station for the final time.
The Minister’s letter came in response to one earlier in the day from the same Permanent Secretary outlining the reasons why replacing the Pacer trains in the way the Minister was proposing was very poor value for money. That letter notes that the UK’s system for transport investment analysis, to a reasonable approximation the application of the Treasury’s Green Book rules for public spending to transport, is “generally regarded as among the world's leading systems of project appraisal and considers non-quantifiable as well quantifiable benefits”. It warns that “the analysis gives an estimated benefit to cost ratio (BCR) for the proposal of 0.35”.
A BCR of 0.35 is very low. It means that for every pound the government spends, it is estimated that there will be just 35p of (broadly defined) economic benefit. Civil servants are required to question spending of such low modelled value. But it is Ministers who represent our democracy and they are free to overrule such advice, just as Patrick McLoughlin did.
The Green Book
Overruling the Green Book with Ministerial Directions like this is quite common. To give a few more examples in transport, it has been done to support further central government funding for London’s Garden Bridge, investigate compulsory purchase of an airport in Kent, and twice to force through a car scrappage scheme. Outside of transport, and of particular interest to me in Leeds, a Ministerial Direction was required to allow central government funding to contribute to building the Leeds Arena — competition with Sheffield Arena and the displacement of event attendance from that venue meant the Green Book modelled value for money of the Leeds Arena was felt too low to justify investment.
Examples like this are why I’ve always been sceptical that the Green Book, the UK Treasury’s guidelines for public investment, desperately needs to be reformed. I have argued that transport investment is political and not constrained by BCRs. I’ve also shown that Northern schemes are less likely to be funded by the UK government despite having higher BCRs, a finding backed up by favourable academics and not found wrong (though also not found right) by sceptical ones.
I’ve been through a few rounds of Green Book reform in my time. The last one completed in 2020 and aimed to support levelling up by adding yet more complication to an overly-complicated document that spins out into extremely complicated processes when departments apply the guidance to their appraisals.
The purpose of extra complication to consider ever broader types of economic benefit such as environment, place-based (levelling up) issues, and energy efficiency when the guidance can at any time be over-ruled by Ministers seems intellectually lazy to me. I have long argued that we should embrace the politics of investment decisions, reduce the influence of experts, and greatly reduce the complexity of the Green Book. This is what Scotland has done, in transport at least, and I think that their record on investment has, astonishingly given fiascos such as their ferry orders, been significantly less bad than the UK’s.
But my voice on this has always been quite a lonely one. It feels particularly lonely at the moment, especially in North England.
Convention of the North
At the recent Convention of the North at least four speakers, including North English Mayors, welcomed the new government’s announcement of yet another Green Book review.
They repeated what I still think is a great myth of investment appraisal, that the current Green Book methodology is biased towards investment in London and South East England. If anything, the opposite may be true with higher land values in the South East and higher wages among commuters into London underweighted.
But I don’t think this matters. The data seems clear to me that the UK government has funded and continues to fund investments like Thameslink and East West Rail in South East England that the Green Book finds to be low value for money. And it has consistently not funded investments like a Leeds Tram or the full Northern Hub plans including new platforms at Manchester Piccadilly that the Green Book found to be good or very good value for money. The North’s cities are as large and dense as their Northern European equivalents and the substantially worse existing infrastructure and lower cost of investments in them tips the balance of value for money in their favour compared to London.
There is no greater example of how the Green Book does not seem to stop investment in the North by undervaluing its returns than HS2. The Southern section of the railway, duplicating railways that are already fast and electrified and requiring vast lengths of expensive new tunnels, has an extremely low BCR. The Northern section of the railway, supplementing slow diesel railways and traversing much cheaper land with less local demand for expensive tunnels, has a much higher BCR. The Southern section of HS2 will be built. The Northern section has been cancelled.
The Green Book isn’t the problem. The UK government is.
Wouldn’t it be more honest to argue for the rules to be applied than to be altered?
What am I missing?
Clearly I’m missing something.
Have I misled myself by believing that Northern investments offer good value for money? I have been offered no data to back that up, but I would love to see some if people have it to hand.
My suspicion is that what I’m missing is the politics of these discussions. The North has had good arguments for decades for greater national investment in transport and R&D and those arguments have failed to convince the overwhelmingly Southern institutions of Britain. Repeating those arguments is unlikely to work this time, even if they remain true; I know that being frank just makes people defensive.
So my guess is that the North’s Mayors, politicians, and advisors have plotted a path forward that avoids embarrassment to those institutions who we rely on to invest in our prosperity. Instead of blaming politicians, experts, national institutions, and the civil service in South East England we’ll blame the Green Book. And if we do a quick review into “the Green Book … and how it is being used across the public sector” we can find a way to help people to make the better decisions for British growth that they should have been making for at least the past three decades without having to admit that they’ve been doing a bad job.
I have no doubt that my opinion will be dismissed by many as “cynical”, “daft”, or “silly”. I’d be much more interested in a respectful guess as to why I’m wrong.