Guidance

Forthcoming change: Green Book updates

Updated 16 April 2026

Description: incorporating Green Book updates in TAG

Unit: A1.1 (cost-benefit analysis), TAG data book

Change announced: April 2026

Expected release date: May 2026

Description

HM Treasury updated the Green Book in February 2026. We are updating TAG to reflect changes in key appraisal guidance.

Detail

HM Treasury updated the Green Book in February 2026, with a focus on supporting fairer and more balanced decisions on investment in every part of the country.

We have reviewed the changes and are updating TAG to incorporate them, prioritising those affecting key components of transport appraisal.

Introduction of a discount rate sensitivity test

The new Green Book advises that practitioners should conduct an additional sensitivity test using a lower discount rate for projects with time horizons beyond 50 years. These are presented in the table below, alongside the standard and health discount rates.

Table: Green Book discount rates

Years from current year	Discount rate (standard)	Discount rate (health)	Discount rate (new – additional sensitivity test)
0-30	3.50%	1.50%	3.00%
31-75	3.00%	1.29%	2.57%
76-125	2.50%	1.07%	2.14%
126-200	2.00%	0.86%	1.71%
201-300	1.50%	0.64%	1.29%
301 and over	1.00%	0.43%	0.86%

The lower discount rates reflect the conclusion of the 2006 Stern review that it is not “ethically defensible for pure social time preference to be applied to cost-benefit calculations that involve significant and irreversible wealth transfers from the future to the present”.

In other words, when we apply ‘pure time preference’ we are reflecting society’s impatience for having benefits now rather than later. This becomes difficult to defend for transport interventions which typically have life spans beyond 50 years, and impact future generations who are not yet living. Therefore, the pure time preference component of the discount rate should be 0%, hence, a lower discount rate in the sensitivity test.

We are updating TAG unit A1.1 (cost-benefit analysis). At the end of section 2.7 (present values and discounting) we will add the following paragraph:

The Green Book Supplementary guidance on discounting recommends that when an appraisal has a time horizon beyond 50 years, practitioners should conduct additional sensitivity analysis. After discounting values using the standard rates outlined above, practitioners should discount values using a variant of the discount rate in which the pure time preference element is excluded. This variant of the discount rate is provided in the TAG Data Book (Table A1.1.1).

We are also updating table A1.1.1 (Green Book discount rates), as presented above.

Clarifying the appraisal period

The Green Book now presents an updated definition of the appraisal period. It now reads:

The first year of an appraisal is known as year 0. This is generally the first year in which there are either social costs or social benefits.

The Green Book used to say (PDF, 1MB) that the appraisal period “should cover the period of usefulness of the assets encompassed by the options under consideration”.

The new definition of the appraisal period in the Green Book differs from the definition in TAG and from established practice in transport appraisal. We have confirmed with HM Treasury that the definition included in TAG is appropriate in the context of transport appraisal.

Nothing is changing in the definition of the appraisal period in TAG. However, we are making it clearer in TAG unit A1.1 (cost-benefit analysis) by adding:

• paragraph 2.3.3, which will read: For these projects the core appraisal period should cover the entire period from the appraisal year up to the year in which the scheme opens, as well as 60 years from when the scheme opens. For clarity, defining ay as the appraisal year and oy the scheme’s opening year, the appraisal period will cover: appraisal period = (ay, ay+1, …, oy-1) + (oy, oy+1, …, oy+59). For example, a transport scheme appraised in 2026 (ay) and opening in 2029 (oy) would be appraised between: appraisal period = (2026 to 2028) + (2029 to 2088) = 2026 to 2088
• a note to paragraph 2.3.3, which will read: the Green Book advises that the appraisal period should start in the first year in which there are either social costs or benefits. TAG slightly deviates from this because transport scheme benefits can be appraised for 60 years after scheme opening. This has been agreed with HM Treasury

Private finance appraisal

TAG does not currently address the specific requirements for appraising options involving private sector finance. We are introducing guidance in TAG unit A1.1 to codify existing Green Book (annex A) requirements within the transport appraisal framework.

The Green Book (annex A) sets out requirements for appraising private finance options, including the need for a public sector comparator, an additional sensitivity analysis using a risk-free gilt rate, and qualitative screening criteria. These are not currently reflected in TAG, leaving practitioners without transport-specific guidance when private finance is being considered as a procurement route.

We are adding guidance across 4 sections of TAG unit A1.1.

Gilt rate sensitivity analysis (section 2.7)

Where shortlisted options include private sector finance, an additional sensitivity analysis should be undertaken in which project costs for all shortlisted options are discounted at a risk-free gilt rate rather than the STPR. The gilt rate should align with the weighted average life (WAL) of the private finance contract. This analysis reveals the premium the Exchequer pays for choosing private finance over public finance and should be presented alongside the core STPR-discounted results.

An annex to TAG A1.1 will set out how to calculate the WAL. This is by combining all financing cashflows into a single hypothetical government loan and calculating the WAL on principal repayments. The annex will also set out how to match the WAL to a liquid benchmark rate of either 5, 10 or 30 years to then identify the appropriate rate from the gilt yield curve produced by the Bank of England. The gilt rate should be converted from nominal to real terms using the GDP deflator.

Modelling private finance costs (section 2.8)

Where an option involves private sector finance, costs should be modelled as the stream of payments to the private finance provider over the life of the contract, rather than as upfront capital expenditure.

Longlist screening (section 2.9)

Practitioners should assess the suitability of private finance at the longlist stage using qualitative criteria set out in the Green Book (annex A), covering the type of finance, risk transfer, revenue streams, complexity and ability to measure objectives.

Public sector comparator (section 3.2)

At least one shortlisted option must be an equivalent public sector comparator. Where private finance options are shortlisted, a corresponding public sector comparator should be included for each option where the project would materially differ in terms of service, quality or outcomes.

This delivers the same project outcomes and quality but solely financed using public sector funds. Adjustments should be made for differences in tax treatment based on actual tax paid. Where there is no public interest case for government control of the entity delivering the asset, a public sector comparator may not be required, subject to HMT approval.

Economic transfers

The Green Book (paragraphs 6.33 to 6.40) now includes guidance on the treatment of economic transfers in cost-benefit analysis. Economic transfers are payments from one party to another where no good or service is received in return, such as tax revenues, grants, subsidies, penalties and fines. They impose a cost on the payer and an equal benefit on the recipient, so they do not in themselves make society better or worse off. However, they often give rise to effects that produce social costs or social benefits.

The Green Book sets out 2 approaches: include transfers as offsetting costs and benefits or exclude them from the analysis altogether. TAG does not currently provide guidance on which approach practitioners should follow.

We are adding a new section to TAG unit A1.1 (cost-benefit analysis), between the existing sections on perceived costs, factor costs and market prices (section 2.5) and real prices and accounting for inflation (section 2.6).

The new section will:

• define economic transfers and explain why they require careful treatment in cost-benefit analysis
• direct practitioners to include economic transfers as offsetting costs and benefits, consistent with the willingness-to-pay calculus prescribed by TAG (paragraph 2.1.3 and appendix A), which tracks how a scheme affects each group rather than netting out flows between them
• explain that the department’s standard TEE and PA reporting tables already provide for this treatment, and that practitioners should ensure transfers are recorded consistently so they cancel out in the AMCB table
• cross-reference the Green Book and TAG unit A4.2 (distributional impact appraisal) for guidance on reporting the distributional effects of economic transfers

Contact

For further information on this guidance update, please contact:

Transport Appraisal and Strategic Modelling (TASM) division
Department for Transport
Zone 1/3 Great Minster House
33 Horseferry Road
London
SW1P 4DR

Email: tasm@dft.gov.uk