7.11 The first step in reforming investment appraisal has already been taken, with the publication of the revised Green Book in January 2003. This set out a rigorous approach to project appraisal for all investment undertaken by the public sector, whether procured conventionally or through PFI. The approach was designed to encourage a more thorough, long-term and analytically robust approach to appraisal and investment evaluation. Measures of particular relevance to PFI are:
• a new discount rate of 3.5 per cent, based solely on social time preference, should be used to assess the present value of any investment proposal;
• separate adjustments should now be applied to appraisal calculations for optimism bias and tax;
• the recommendation that appraisals should be conducted with the rigour appropriate to the scale of the expenditure involved, and the decision-making stage that has been reached;
• that more weight should be placed on valuing the benefits of proposals, and that more steps should be taken to ensure that benefits are realised as projects unfold;
• that greater consideration should be given to the wider impact of proposals across society.