Sept 4 (Reuters) – Britain’s Treasury said on Friday that it would lower a key rate used to evaluate the long-term benefits of investment in public infrastructure projects as part of plans to boost investment across the country.
• The discount rate used for appraising public spending will be cut to 3% from 3.5%, the Treasury said in a statement detailing reforms to its “Green Book” – its manual that dictates the approval of capital projects.
• Discounting is how the Treasury compares costs and benefits that arrive at different points in time – treating £100 today as worth more than the promise of £100 in future.
• Lowering the discount rate reduces that gap, making it easier for long-term projects to show their full value instead of being discounted simply because their benefits take years to arrive.
• The government will publish full details of the plan, including its response to a review of the discount rate, at the budget on October 28. Finance minister John Healey plans to give his first major speech in his new role on Monday, where he is expected to set out details of the plan.
• The changes are intended to give transport, housing and social infrastructure projects a “fairer hearing” in government spending decisions by placing greater weight on benefits that take years to materialise, the Treasury said.
• The Treasury is also testing a new approach that assesses the economic potential of entire areas for investment decisions, rather than judging individual projects one by one. The approach is being piloted in Plymouth, Liverpool, Birmingham and Port Talbot.
(Reporting by Preetika Parashuraman in Bengaluru, Editing by Franklin Paul)
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