Guidance

Forthcoming change: impacts of marginal external costs on GDP updates

Updated 16 April 2026

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This publication is available at https://www.gov.uk/government/publications/tag-forthcoming-changes/forthcoming-change-impacts-of-marginal-external-costs-on-gdp-updates

Description: update to unit A2.1 section 4.4 to include GDP conversions for marginal external costs from unit A5.4

Unit: A2.1 wider economic impacts appraisal

Change announced: April 2026

Expected release date: May 2026

Description

Section 4.4 in TAG unit A2.1 (wider economic impacts) includes guidance for mapping welfare outputs to indicative GDP estimates. This table does not include an approach to converting marginal external costs (MECs) appraisal outputs from TAG unit A5.4, where multi-modal models are not used. This change will provide additional detail to TAG unit A2.1, section 4.4, outlining the approach for mapping MEC welfare outputs to indicative GDP impacts.

Anticipated impact

We expect this to have no impact on usual appraisal outputs. This change updates guidance on indicative GDP impacts, which are used to add detail to the economic narrative of schemes.

Detail

TAG unit A5.4 provides guidance MECs of road (de)congestion specifically for when multi-modal models are not used. The marginal external costs include congestion, infrastructure, accident, local air quality, noise, greenhouse gases and indirect taxation.

TAG unit A2.1 section 4.4 table 4 provides guidance for converting appraisal outputs to GDP based on TASM externally commissioned research (Laird and Byett, 2023). These estimates are to provide additional detail in the economic narrative of schemes (outlined in section 7.4). Currently, section 4.4 does not provide guidance on mapping MEC appraisal outputs to GDP. This means that GDP estimates for schemes that use MECs are missing a component.

We are updating this section to include additional guidance on GDP conversions for welfare impacts from uni-modal marginal external cost appraisal. Similar to the existing table 4, a new table 5 (provisional version available below) will be added that provides parameters to convert welfare impact to indicative GDP impacts for all 7 MECs in TAG unit A5.4. Where applicable, estimates from both tables are to be summed to give a more complete indicative GDP estimate.

This change will have no impact on the usual welfare appraisal metrics and therefore will not affect BCRs. This is to help practitioners who are not using multi-modal models to estimate a more comprehensive indicative GDP impact to be used in the economic rationale. Guidance on how to include GDP estimates in the economic narrative can be found in unit A2.1, section 7.4.

The following table outlines the approach to estimating GDP impacts from marginal external costs welfare appraisal outputs estimates from TAG unit A5.4.

Table 5: MECs welfare appraisal relationship to GDP

Welfare Impact GDP
Congestion (A5.4) Benefits from time saved for work, commuting and leisure trips 53% of the congestion MEC welfare impact[footnote 1]
Infrastructure (A5.4) Physical road maintenance, repair and renewal costs from additional traffic 0% of road maintenance expenditure[footnote 2]
Accidents (A5.4) Based on VPF and injury values 15% of accidents MEC impact (see table 4)
Local air quality (A5.4) Welfare impact taken from Defra AQ damage costs 20% of local air quality MEC impact (see table 4)
Noise (A5.4) Amenity values and specific health impacts 0% as impacts to GDP are negligible[footnote 3]
Greenhouse gases (A5.4) Carbon valuation from DESNZ marginal abatement costs 0% of welfare impact[footnote 4]
Indirect taxation (A5.4) Change in government surplus (transfer between users and the Exchequer) 0% of change in indirect taxation[footnote 5]

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

  1. This is equal to the share of road traffic benefits associated with work related trips. ↩

  2. Any resources used for road infrastructure maintenance are displaced from other areas of the economy and do not lead to additional output. ↩

  3. Noise effects on GDP are negligible, but it may be proportionate to estimate GDP effects for interventions with significant noise impacts. ↩

  4. The marginal abatement cost approach to carbon valuation and the UK legal commitment to reduce carbon emissions implied no net effect on GDP of changes in emissions (Laird, 2023). ↩

  5. Indirect taxation constitutes a transfer between users, and the Exchequer therefore does not impact real total output. ↩

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