FCERM grant-in-aid: discount rates, price indices and capping
Published 22 November 2021
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This guidance is for FCERM project teams who need to apply for government flood defence grant-in-aid (FDGIA) for projects or strategies.
This guidance explains how to apply the following consistently:
- the discount rates defined in the Treasury Green Book (published 2018)
- price indices
- capping in economic appraisals
Risk management authorities (RMA) in England may find this information useful for developing plans and making flood and coastal erosion risk management (FCERM) investment decisions.
1. Transitional arrangements
When working with this guidance, you should follow the arrangements for Transitioning to the 2020 flood and coastal erosion resilience partnership funding policy.
2. Discount rates
The 2018 Treasury Green Book has the standard discount rate of 3.5%, and introduces a new discount rate for ‘risk to health and life’. The new rate starts at 1.5%.
For the purposes of FCERM projects, you should only apply this lower discount rate to:
- risk to life valuations
- mental health valuations
- human-related intangible costs to stress and health
- emergency services
The Green Book Supplementary Guidance Discount Factors spreadsheet contains the discount rates and the discount factors for each year. Paste these into existing economic appraisal spreadsheets. Check you’ve applied the appropriate discount rate to the correct element of the appraisal.
| Discount rates | Years 0-30 | Years 31-75 | Years 75-125 | Discount factor years 0-99 |
|---|---|---|---|---|
| Standard discount rate | 3.5% | 3.0% | 2.5% | 29.813 |
| Health discount rate | 1.5% | 1.286% | 1.071% | 54.356 |
3. Price indices
The 2018 Green Book recommends using the GDP deflator to update price-dated values to a current price date. Apply this as default to all elements of the economic benefit appraisal where you must update source data to a current price date.
4. Capping
The FCERM appraisal guidance explains how to apply capping and write-off.
The total present value benefits are sensitive to how you apply capping and write-off. Sensitivity has increased due to the new discount rates and the inclusion of mental health impacts.
Calculate the annual average damages to each property based on the impacts to the property contents and structure. These impacts are presented in the MCM depth damage curves.
Apply the full annual average damage each year until the present value damages equal the risk-free regional market value (defined in the appraisal guidance). At this point, you can assume that the property is either abandoned or has been made so resilient that it can incur no further damages.
You must not apply any further damages to that property beyond this point, including:
- direct damages
- evacuation
- vehicles
- health values
- any other losses