Treasury updates 25-year-old investment rule following University of York review

Posted on Thursday 5 November 2026

Chancellor John Healey confirmed this headline change, alongside announcing other amendments to the discount rate, in the Budget statement, marking the first significant discounting updates to the Treasury's central investment manual in a quarter of a century. 

These decisions follow an academic review co-led by Professor Mark Freeman from the University of York and Professor Ben Groom from the University of Exeter.

The social discount rate determines how the Government evaluates the future value of public policy and infrastructure. Under the previous 3.5% rate, projects offering short-term financial returns were often favoured. Lowering the rate to 3% ensures cost-benefit calculations place significantly higher value on benefits that unfold over decades.

Lasting investments

This shift will directly shape future decisions across public spending, including major transport networks, hospital construction and long-term environmental preservation schemes. By giving greater weight to the future environmental and social impact of decisions made today, the new framework provides stronger support for lasting investments.

Treasury ministers accepted 15 of the review's 23 recommendations in full and partially accepted a further five. Alongside lowering the headline rate, the Government committed to reviewing the discount rate every five years to keep investment appraisals aligned with long-term economic forecasts.

Impossibly fascinating problem

Professor Mark Freeman, from the School for Business and Society at the University of York, said: “The social discount rate has been described in the press as ‘The single most economically significant, philosophically contentious number in government’, and that selecting the appropriate value is ‘one of the knottiest, most intellectually demanding and impossibly fascinating problems in all of economics’.  

“My work with Ben has drawn on economic and ethical theory, new expert survey data, discussions with both leading international academics and public sector users of the Green Book, fully updated estimations of statistical models, and considerations of economic and financial market indicators. This takes a wider approach to discounting than previous guidance, giving HM Treasury confidence in the academic robustness of our recommendations”.  

Improve decision-making

Co-lead author Professor Ben Groom, from the University of Exeter Business School, added: “Social discounting works like the inverse of compound investing, with the rate you use being very consequential. Lowering the social discount rate can mean the difference between a government backing projects designed to address long-term climate change or favouring projects with quicker returns but which deliver less for society.

“Mark and I are thrilled that our review's recommendations are being taken on board by the Treasury. The review was a great example of how academics and government can collaborate to improve public sector decision-making.”

The Treasury has published a formal response to the review alongside an updated version of its Green Book investment guide and new supplementary discounting guidance.

As part of the updates, officials will replace sector-specific discount rates with updated long-term sectoral valuations and remove certain types of sensitivity analysis. Officials confirmed they will keep the remaining three unadopted recommendations under review as the new framework takes effect.