Government must get better at valuing the costs and benefits of infrastructure, says new report

The Government’s use of cost benefit analysis must improve if crucial investments in the country’s infrastructure are to succeed, argues a new report by the Institute for Government.

The report, How to value infrastructure: Improving cost benefit analysis, argues that with a quarter of a trillion pounds worth of infrastructure investment expected over the next five years, the Government can’t afford expensive mistakes and unnecessary delays.

Cost benefit analysis is the best way for government to assess the economic value of projects, but it is often misused, inconsistently applied and poorly communicated. This risks the wrong projects being approved while valuable projects are either turned down or delayed. The report argues that cost benefit analysis is sometimes used by ministers to justify decisions that have already been made. Not only does this erode public trust in government, it also harms the country’s long term competitiveness.

However, the report finds that cost benefit analysis can improve decision making – when used properly – and shouldn’t be abandoned.

The report recommends that the Treasury and relevant departments, including the Department for Transport, publish clearer guidance for analysts, based on more and better data, with more consistent assessment. Ministers must be more transparent about the way they make they make difficult infrastructure decisions.

Getting better at cost benefit analysis could go a long way in enabling the Government to commission projects that will help transform the UK economy, and avoid expensive overruns like the Channel Tunnel or the embarrassing U-turns of the rail electrification programme.

Nick Davies, Research Manager at the Institute for Government and report author, said:

“Picking the right infrastructure projects can help boost productivity and economic growth. Cost benefit analysis should be a crucial tool for ministers making these decisions but too often it is misused, inconsistently applied and poorly communicated.

“Government must get much better at learning from the successes and failures of previous projects. Equally, ministers should be far more honest with the public about the limits of modelling and the real reasons behind their decisions. Cost benefit analysis is a useful tool but it will only ever be as good as the people using it.”