Response to the UK Government review of discounting in the Green Book

This response was submitted to a review launched by His Majesty’s Treasury in December 2025 into discounting in the ‘Green Book’, the UK government’s handbook on policy appraisal.

Discount rates are applied to the estimated costs and benefits of a proposed intervention to allow policymakers to compare investments occurring across different timeframes. Such considerations are particularly important in the context of transformational projects, such as climate–related interventions.

Recommendations

• Type of discount rate: Continuing the use of a Social Time Preference Rate (STPR) approach instead of a Social Opportunity Cost (SOC) approach is recommended to discount costs and benefits in government appraisal, to ensure a broader range of societal factors can be considered.
• Parameters in the Ramsey rule: The rate of pure time preference should be set to zero, to avoid discounting future generations, and consideration given to whether the current growth metric (GDP per capita) and value (2%) are still valid in the context of environmental degradation and slower growth rates.
• Risk: Non–systemic risks should be accounted for appropriately in the appraisal of policy interventions.
• Environmental impacts: If discount rates do not explicitly incorporate environmental impacts, verifying the extent to which they are appraised systematically in other parts of cost–benefit analysis across the wider portfolio of government projects is recommended.
• Adjusting discount rates specifically for transformational projects: Such an adjustment is not advised; instead, it is recommended that a single, lower, discount rate is applied to the entire portfolio of government projects.

Read the author’s commentary based on this submission here.