The Economics Team at the Department for Communities and Local Government (DCLG) have recently published their new Appraisal Guide. AMION have been heavily involved in this new Guide, and this feature explains what it means to you, as a practitioner.
Why is it important?
If you are a public sector body working in the fields of local growth, regeneration or housing then the way you appraise your schemes is absolute certainly set to change.
One of the principle casualties of the new methodology is the default position that jobs created by an initiative do not increase aggregate employment. This means that the appraiser should not place a monetary value on any employment impacts unless there is evidence of a supply-side effect. That is, we should move away from calculating the Gross Value Added, or GVA.
So, what do we measure?
Hello land value uplift
Perhaps the most fundamental change is the preferred approach to valuing the benefits of development. Used for both residential and commercial sites, land value uplift – or LVU – aims to capture the economic efficiency of converting land into a more productive use. It is this ‘uplift’ in value that needs to be measured and recorded in the economic appraisal or business case.
Are there other changes?
Appraisal Summary Table
In addition to the shift from GVA to land value uplift, the new Guide has introduced a number of other significant changes. One of them is the introduction of an Appraisal Summary Table, or AST. Central government is keen to formalised appraisal reporting; making sure all the key summary statistics are assessed consistently in one single place.
Without giving them full justice, there were also changes to the treatment of externalities, benefit cost ratios, distributional impacts and net exchequer costs, to name but a few.
How have AMION been involved?
AMION have led the field developing and applying this new Appraisal Guide.
In addition to being a consultee on DCLG’s early working drafts, AMION have been asked by the Homes and Communities Agency (HCA) to identify the key changes flowing from the Guide, and how these impact on the Agency’s own appraisal systems.
AMION have prepared many business cases using the new methodology, a number of which were then actually approved by DCLG and HM Treasury themselves.
Want more advice?
Speak to Graham Russell, who heads up the Economics Team at AMION on 0151 227 5563 or firstname.lastname@example.org who will be more than happy to help you.