Green Book discount rate to fall: what it could mean for long-term and place-based investment

The government has announced a significant change to the way it assesses the long-term value of public investment.

In his Growth Speech on 7 September 2026, Chancellor John Healey announced that the Treasury's Green Book discount rate will be reduced from 3.5% to 3%.

Projects whose benefits take years to emerge could be materially affected, including transport, housing, skills, prevention, community infrastructure and environmental improvement.

The Chancellor also announced "economic potential analysis", intended to help government assess places not only by their current economic position, but by what they could become.

The lower discount rate and economic potential analysis could alter how government considers long-term value, place and public investment.

What is the Green Book discount rate?

The Green Book is HM Treasury's guidance for assessing the costs, benefits and risks of proposals involving public money.

As part of that process, future costs and benefits are converted into today's values. This is known as discounting.

Discounting gives a benefit received many years from now less weight in an appraisal than an equivalent benefit received today.

The rate used for this calculation is known as the Social Time Preference Rate.

Under the published 2026 Green Book, the standard rate is 3.5% for the first 30 years. It falls to 3% for years 31 to 75 and 2.5% after that.

A lower initial rate means benefits occurring further into the future lose less of their value when converted into present-value calculations. This can make a material difference where costs are incurred early but benefits build gradually over many years.

Why is the discount rate changing?

The announcement follows a wider review of the Green Book.

One concern raised during that work was that the existing approach could make it harder for transformational investments to demonstrate their full long-term value.

HM Treasury commissioned an independent review of discounting led by Professor Ben Groom and Professor Mark Freeman. The Green Book discount rate review 2026 recommended reducing the headline rate from 3.5% to 3%.

HM Treasury's one-year update on the 2025 Green Book Review said the review was intended to test whether the existing rate risked undervaluing the long-term benefits of transformational investment.

The Chancellor has now confirmed the government's intention to make the change. He said the lower rate would favour projects with more long-term potential and help more places across the UK receive fair consideration in investment decisions.

Why economic potential analysis matters for places

The introduction of economic potential analysis may be as important as the rate change.

The Chancellor described the aim as assessing places "not on what they are today, but on what they could become in the future."

That approach fits with changes already made to the Green Book. The 2026 edition includes explicit guidance on place-based analysis, requiring practitioners to consider how the costs, benefits and risks of proposals are distributed between places.

It also states that value for money should be a balanced judgement. Monetised benefits matter, alongside unmonetised benefits, distributional effects, risks, public-sector costs and whether a proposal is likely to achieve its objectives.

Investment decisions based heavily on existing economic activity can become self-reinforcing. Places with stronger economies can more readily demonstrate current demand and economic returns. Investment intended to change a place's trajectory may take longer to produce measurable benefits.

Economic potential analysis introduces a different question: what could this investment enable?

The revised 2026 Magenta Book also gives place-based evaluation greater prominence. Together, the appraisal and evaluation guidance encourage public bodies to consider both local context and how outcomes develop over time.

What could the change mean for social value?

The effect extends beyond major infrastructure projects because many social outcomes are long term.

Improving skills may influence a person's employment and earnings for years. Preventative health interventions may reduce future demand on public services. Better housing, community infrastructure and green space can create benefits that continue for decades.

The same applies to interventions designed to address entrenched inequalities or strengthen local economies. Their value may not be fully visible in the first year, or even the first few years.

A lower discount rate does not make these interventions good value for money by itself. It does not remove the need for credible evidence.

The Green Book still expects practitioners to consider additionality, deadweight, displacement, uncertainty and the strength of the evidence behind projected outcomes. These are also central to a credible Social Return on Investment analysis.

What changes is the weight given to benefits expected to endure.

For organisations measuring social value, this reinforces the need to look beyond immediate activity. Numbers of people trained, volunteering hours delivered or trees planted show what happened. Understanding the outcomes that follow, how long they last and who or which places benefit provides a stronger account of value.

From current need to future potential

Place-based investment needs evidence about both current conditions and possible change.

Data about existing conditions can show where inequalities, barriers and opportunities are concentrated. It can help organisations understand employment, health, skills, housing, deprivation and other characteristics of a place.

Appraisal must then ask what could realistically change as a result of investment. A place should not be defined only by its existing outcomes.

For public bodies, funders and organisations developing social value programmes, this means examining the relationship between need, intervention and potential:

1. What is happening now?
2. What could realistically change?
3. What evidence would demonstrate that change over time?

Place Explorer provides local economic and social evidence that can help organisations understand the first of these questions. A clear Theory of Change can then connect the proposed intervention to the outcomes it is expected to produce.

What happens next?

The announcement has not yet changed the guidance currently in force.

The published 2026 Green Book still specifies a 3.5% Social Time Preference Rate for the first 30 years of an appraisal. Organisations undertaking Green Book appraisals should continue to follow the applicable Treasury guidance rather than changing calculations solely on the basis of the speech.

Further detail is needed on when and how the new 3% rate will be implemented, and how economic potential analysis will work in practice.

The announcement places greater emphasis on the long-term effects of investment, how benefits are distributed between places and whether investment can change a place's future trajectory.

For social value practitioners, the practical task remains the same: define the intended outcomes, assess how long they may last, test the assumptions and retain evidence strong enough to support the appraisal.

Sources

• HM Treasury, Chancellor John Healey's Growth Speech 2026, 7 September 2026.
• HM Treasury, Green Book discount rate review 2026, updated 30 June 2026.
• HM Treasury, The Green Book (2026), published 5 February 2026.
• HM Treasury, Green Book Review 2025: One year on, 30 June 2026.