Economic Appraisal Guidance
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NI Practical Guide to the Green Book

Introduction

Public expenditure in Northern Ireland (NI) amounts to more than £10 billion annually. It is vital both that this money is put to good use and also that it can be accounted for. The Northern Ireland Practical Guide to the Green Book (hereafter abbreviated to the NI Practical Guide) is designed to help achieve these ends. It represents current Department of Finance and Personnel (DFP) guidance and requirements on the appraisal, evaluation, approval and management of policies, programmes and projects. These are essential elements in the cycle of policy, programme and project planning and delivery.

The NI Practical Guide replaces the Northern Ireland Preface to the Green Book, published by DFP in 1997. It generally accords with the principles of the latest HM Treasury Green Book1 but contains more practical guidance tailored specifically to the needs of NI Departments, including some issues that are not covered in the Green Book. For example, it covers DFP's approval requirements and takes account of local policies and institutional arrangements. The NI Practical Guide is the primary guide for NI Departments. However, it should be read in conjunction with the Green Book, which remains an authoritative guide to the principles of appraisal and evaluation, and contains more detail on some aspects of them.

The principles in this guide must be applied, with appropriate and proportionate effort, to all proposals that involve spending or saving public money, including EU funds, or changes in the use of public resources. All such proposals should be supported by evidence of suitable appraisal, approval, management and evaluation. There are no exceptions to this general requirement.

The NI Practical Guide builds on the achievements associated with the introduction of the Northern Ireland Preface to the Green Book in 1997. It maintains as much continuity as possible with established procedures. For example, it retains a 10-step approach to appraisal similar to that introduced in the Northern Ireland Preface to the Green Book. However, it also incorporates developments since 1997.

These include the key changes introduced by the 2003 Green Book. In some cases these are adopted fully, in others allowance is made for local circumstances. The main changes arising from the new Green Book are:

  1. The discount rate is reduced from 6% to 3.5% in real terms i.e. after adjusting for inflation. See 2.8 below
  2. The new 3.5% rate is also to serve as the Resource Accounting and Budgeting Cost of Capital Charge (RABCCC). See 2.8
  3. Greater stress is placed upon the identification, management and realisation of benefits. See 2.5.35 and 10.6.10
  4. There is more emphasis on assessing distributional impacts of proposals. See 2.7.13
  5. There is a new requirement to adjust assumptions to counter appraisal optimism. See 2.6.15
  6. New adjustments are adopted to reflect the differing tax liabilities of options in PFI cases. See 5.11

The NI Practical Guide is more comprehensive than the Northern Ireland Preface to the Green Book in other respects. For example, it includes new, revised or expanded guidance on:

Section 9 of the NI Practical Guide sets out the general principles to be applied by approving authorities when approving capital projects and other expenditures. All of these principles need to be applied but the following one deserves special attention:

Approvals in principle should not be granted prior to the completion of a suitable business case, including an appropriate economic appraisal. Only when needs, objectives, options, costs, benefits, risks, funding, affordability and other relevant factors have been thoroughly investigated according to the relevant appraisal methodology can approving authorities be assured that a particular proposal is likely to represent VFM and satisfy accountability requirements.

The NI Practical Guide also states DFP's basic requirements for cases that need DFP approval, and clarifies the standard conditions of DFP approval. These are covered in sections 9.2 and 9.3. It should be noted in particular that:

It is now a general condition of DFP approval that Supply must be notified if at any time costs or other assumptions vary by more than 10%, or if implementation is delayed by more than 24 months, by comparison to the estimates given in the business case upon which DFP approval was based.

Where the term "Departments" is used in this guide, it should be understood to cover all the public bodies for which Departments have responsibility. Departments are responsible to ensure that appropriate procedures exist in relation to all the UK and EU grants, expenditures and resources for which they are accountable, including those of their Agencies, Non-Departmental Public Bodies (NDPBs) and other bodies. This includes ensuring that any relevant current guidance is updated promptly to meet the requirements of the NI Practical Guide.

The principles of this guide apply to all expenditures regardless of whether they are above or below delegations from DFP to Departments. However, it is important that they are applied with appropriate and proportionate effort. This vital concept is explained in section 1.3.

The full text of this guide is (or will shortly be) available on a new DFP web page at http://eag.dfpni.gov.uk/ together with a number of other useful appraisal resources including spreadsheets to help calculate NPVs and optimism bias.

Suggestions to improve the NI Practical Guide are welcome, and should be addressed in the first instance to DFP's Economic Appraisal Branch at Rathgael House.

Department of Finance and Personnel

September 2003



1The Green Book is the name given to the HM Treasury Guide "Appraisal and Evaluation in Central Government" (ISBN 0115601074) which may be purchased @ £19.95 per copy from the Stationery Office. It is also available together with supplementary guidance on the Treasury website at HM Treasury Green Book