Policy instruments (1) - Transport Policy and Planning in Great Britain - page 200

money (relevant to decision-taking) remains a very important one and a subject we
will return to later when considering procedures for scheme approval (21.5).
Social cost-benefit analysis, as undertaken by public agencies, is distinctive in
that all identifiable impacts are included - whoever happens to be the recipient.
Nevertheless the Government has a particular interest in how its own resources are
affected (as represented by public income and expenditure). Investment appraisals
therefore include an assessment of impacts on public accounts. As we saw previously
in the NATA framework (Table 11.1) one of the sub-objectives included under the
Economy heading was to achieve 'value for money' in terms of these impacts, i.e. to
obtain maximum benefit from the net cost to the public purse.
Conceptually CBA is limited in that 'welfare' is defined in the specific sense of
economic efficiency only, i.e. with well-being in total. Benefits and costs are aggregated
whoever happens to gain or lose and wherever the impacts happen to occur. Logically
this can be justified on the basis of the 'compensation principle', i.e. that if overall gains
outweigh overall losses it would be possible in theory for the gainers to compensate the
losers (or for the Government to introduce some pattern of fiscal regulation, i.e. taxes
and subsidies, which would have the same effect). However this is a rarified argument
which is difficult to sustain in the real world if - as is commonly the case - little in the
way of direct compensation actually occurs.
In practice decision-takers will be very concerned about the distribution of impacts.
This is partly out of a general respect for the principle of equity and partly because of
political sensitivity to the likely response from locally elected representatives and other
stakeholders who have particular constituencies of interest. It is this distributional
dimension (i.e. who benefits from the use of scarce resources) and the choice exercised
over it which often dominates public debates.
Appraisal in general and CBA in particular can therefore be considered a technical,
ostensibly 'neutral', method of presenting to politicians and others the implications of
possible courses of action. This then enables value-judgements about distributional
priorities to be superimposed before arriving at a final decision. The appraisal process
followed by DfT includes supplementary analyses of distributional and other effects to
help in this (21.7).
Providing its limitations are explicitly recognised, CBA can be of great practical
assistance in decision-making. This is because within the range of items included in the
analysis,

a Different kinds of impact are measured using a common unit (i.e. money) enabling

their effects to be aggregated. As a result the decision-taker is relieved of the task
of trying to gauge the net outcome of a variety of gains and losses (e.g. the loss of
property needed to secure the traffic benefits of a road widening scheme)', or at
least to limit this to impacts which cannot be measured in monetary terms.

b Because money is a unit which we utilise to represent value the relationship of

aggregated benefits to aggregated costs can demonstrate whether an investment is
economically worthwhile (i.e. whether it results in a net gain) and if so the extent
to which it is better or worse than other spending options available.

Individual projects vary in the time taken to achieve their implementation and
in the period during which they will generate costs and benefits (their 'economic
lifetime'). To enable projects or programmes to be compared on a like basis, two
adjustments are made to all monetary measurements included within a CBA: