The Treasury's guidance on cost-benefit analysis is available in the
Green Book, at
https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent
There are several well-known weaknesses in CBA: they include the
acceptance of market values as equivalent to social value, the failure
to compensate losers in one place for acts that benefit others, and a
calculus which means that a small benefit to a lot of people can
outweigh massive harm to a few. The Treasury does allow for adjustments
to take into account distributional inequities, but it's unusual to see
them applied.
I don't know where the 8:1 figure comes from - it's not in the Green
Book (by contrast with the discount rate, which is). I'd understood
that the Environmental Agency operates different ratios according to the
context where the decision applied: at
http://www.publications.parliament.uk/pa/cm201314/cmselect/cmenvfru/330/33005.htm
there is a complaint from the Country Land and Business Association that
their Benefit-cost ratio is set at 18:1 while householders have theirs
at 5:1. That's a statement from July 2013.
Paul Spicker
On 10/02/2014 20:43, Ted Harding wrote:
> On 10-Feb-2014 17:19:35 John Bibby wrote:
>> Chris Smith said the treasury rule requires a benefit/cost ratio of
>> "at least eight".
>>
>> They are discussing it on PM right now.
>>
>> But where does the number 8 come from? I thought it would be about 1.
>> JOHN B
> I heard it myself on World At One (at about 13:30), again uttered
> by Lord Smith. He gave the 8:1 ratio, and said that it was a "government
> spending rule" ... I have no idea what the basis of the "8:1" rule is
> (but see below ... ).
>
> Interestingly, a minute later in the program, there was an interview
> with Professor Richard Ashley who, "ten years ago", was a co-author
> of a report into flood risks and their management. From his Sheffield
> University web-page:
>
> https://www.shef.ac.uk/civil/staff/research/ashleyr
>
> I infer that this was the two-volume:
>
> Future Flooding Vol I -- Future risks and their drivers. (2004).
> Evans EP., Ashley R M., Hall J., Penning-Rowsell E., Saul A.,
> Sayers P., Thorne C., Watkinson A.
> Foresight.. Office of Science and Technology. April.
>
> Future Flooding Vol II -- Managing future risks. (2004).
> Evans EP., Ashley R M., Hall J., Penning-Rowsell E., Sayers P.,
> Thorne C., Watkinson A.
> Foresight.. Office of Science and Technology. April.
>
> He said that the Government had ignored their conclusions and their
> recommendations ever since. He sounded quite vehement.
>
> For the World At One broadcast, go to:
>
> http://www.bbc.co.uk/programmes/b03tr3mw
>
> Lord Smith is at about 33:00, followed by Richard Ashley at about 34:00.
>
> I have tried to find out whether these reports are publicly available,
> but no luck so far. They could be interesting reading, especially if
> compared with the current situation!
>
> If anyone has a lead as to where (or if) they can be accessed, I'd be
> most obliged.
>
> John, as to your "But where does the number 8 come from? I thought
> it would be about 1" -- come on, John, don't be silly! The 8:1 ratio
> would encourage the money to be spent where it will do most good!
>
> You have a housing estate of some 30 houses built after the developers
> engineered planning permission to build on a flood plain. Average value
> of each house: £150,000. Total value: £4.5 million.
>
> As it happens, the cost of upgrading the flood prevention for the
> area would be £5 million. On your 1:1 principle, that money should
> be spent on protecting their homes.
>
> But, in fact, their insurers will probably pay up (if they could
> afford the premiums in the first place), and in any case they can
> be moved to some other estate of "affordable housing" -- probably
> also on a flood plain. So no problem. At best they're only farmers,
> and moving them around will do no harm.
>
> Meanwhile, further upstream is a small village, also at risk of
> flooding, where there are 5 houses each worth £8 million. The "8:1"
> rule ensures that these are eligible for flood protection upgrade,
> which is much better value -- especially since their owners are
> City financial traders, for whom the worry and distress due to
> flooding, or the risk of flooding, could impair their judgement
> and result in serious instabilities in the Stock Market.
>
> John: get your priorities right!
>
> Best wishes to all,
> Ted.
>
> -------------------------------------------------
> E-Mail: (Ted Harding) <[log in to unmask]>
> Date: 10-Feb-2014 Time: 20:43:35
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