While appearing on a recent podcast, the interviewer described me as a ‘Green Book wizard' – such is the mystique that surrounds this government guidance. No other piece of bureaucratic text seems to ignite as much passion and confusion in policy circles, particularly when it comes to regional disparities.

The Green Book serves as HM Treasury's official guide for appraising policies, projects and programmes. Its methodologies are designed to ensure public funds are allocated in a way that achieves good value for money for society. However, critics argue it favours already prosperous regions and its methodology is biased against proposals in other regions.

It is important to understand both what the Green Book is for and why it was created. It is a tension between these two points which drives criticism of the system.

The origins of the Green Book lie in the nationalised industries of the post-war era. Those industries – as well as the Treasury – needed an accurate way to assess the costs and benefits of different capital investment proposals in areas like water or electricity networks. This put cost-benefit analysis at the heart of the original Green Book.

However, the remit of the Green Book has since been extended. It now applies to all policy areas and takes a more holistic ‘five case' approach to creating business cases. This is meant to look not just at cost-benefit analysis but also the strategic, economic, commercial, financial and management merits of proposals.

Despite the previous review, there is still a view the Green Book is blocking proposals that could be regarded as good value for money

It has also become more complicated. Supplementary and departmental guidance documents now run to thousands of pages, forming part of a ‘Green Book ecosystem' supported by an industry of consultants tasked with the development of business cases.

Despite this broadening of scope, plethora of guidance and the ‘five case' approach, cost-benefit analysis remains the historic and cultural heart of the Green Book ecosystem. Particularly as it is most amenable to modelling by consultant economists. It is seemingly often much easier to think that decision making can be boiled down to one metric than to grapple with the strategic context and objectives of different proposals.

But the Green Book is only about advice from officials to elected decision makers. The principle that ‘civil servants advise while ministers decide' is essential to the functioning of our democracy. So many of the criticisms of decisions would be more accurately laid at the door of previous government ministers. But there are also some elements of the above usage of the Green Book which must change, given the importance it has for the system of advice given to ministers.

Some reading this might be feeling a sense of deja vu. That is because in March 2020, the then government announced a Green Book Review claiming that ‘The Government would expect future investments to be better aligned with its ambitions to level up the country.'

But despite the previous review, there is still a view the Green Book is blocking proposals that could be regarded as good value for money.

I recently authored a new report, Nation Rebalanced for Labour Together, which sets out how we can put the country on a path towards more broadly based prosperity, including how we need to reform the Green Book. I think the latest Green Book Review must address the following three issues if it is to improve upon previous efforts at reform.

Firstly, the Green Book system of guidance and approvals has become too long and complex. The Green Book is a single document, but also an ecosystem of further guidance and a culture that has built up around it. This leaves far too much room for interpretation or inconsistency. The 2024 review of R&D business cases found that business cases were averaging around 250 pages and taking nine months to go through approval processes. A less complex system with more streamlined approvals would save time and effort with shorter business cases designed to answer a simple question: how do we achieve good value for money?

Secondly, Green Book best practice could be updated to ensure project funding is primarily based on strategic objectives. This would mean an end to arbitrary cost-benefit ratio thresholds based on modelling, which by itself can never tell the whole story. A myth persists that a proposal must have a benefit-cost ratio of one or even two to be considered value for money. This is false. One only has to look at the successes of the Elizabeth Line or the Northumberland Line, both achieving passenger numbers way beyond those that were forecast, to realise that projects aligned to wider strategy are inherently difficult to model and sometimes can never capture the full costs and benefits.

Thus, economic modelling must be treated with caution rather than reverence. Used appropriately, it is a powerful aid to decision making. Taken too far, it can indeed be a blocker to good policy.

Thirdly, we need greater transparency and evidence building. This should include published business cases and judgments on why decision makers believe a project to be value for money given the available information. This would be underpinned by better evaluation following projects to improve assumptions for future projects and certainty for supply chains over planned delivery to improve cost modelling. Devolution, which puts local communities in charge of where the marginal pound should go, would also help improve value for money.

Reforming the Green Book is not just about guidance, but about changing how the Government functions and how our democracy makes decisions. By reforming the culture and practice of investment appraisal processes, we can pave the way for a more equitable and prosperous nation.

JP Spencer is director of devolution policy at Labour Together