2.17 Discounting is used to compare costs and benefits occurring over different periods of time - it converts costs and benefits into present values. It is based on the concept of time preference, that generally people prefer to receive goods and services now rather than later. If Projects A and B have identical costs and benefits but Project A delivers benefits a year earlier, time preference means Project A is valued more highly.
2.18 In government appraisal costs and benefits are discounted using the social time preference rate of 3.5% (the basis for this is explained in Annex 6).