6.26 The design of an asset sale is subject to the Green Book and HM Treasury Business Case Guidance. Estimates of social value should include wider social costs and benefits that may be affected by a sale.
6.27 The value of existing assets is their opportunity cost. For asset sales this is usually the value in the market and must be estimated where no comparable market value exists. Where there is a known stream of income arising from an asset's ownership (e.g. interest, repayment of a debt, or rental/lease income) the value should be estimated based on a discounted value of the future income stream (using Social Time Preference Rate, STPR). Where there is no income stream, market value can be estimated using comparable sale values or comparable potential income streams. The asset value used should inform the estimate of social value and public sector income.
6.28 Where an asset is unused, there may still be positive benefit of an alternative use if transferred to the private sector or a wider social cost of disposal. These costs and benefits may be affected by the method and timing of the sale and any provisions attached. There may also be public sector or social costs associated with ongoing ownership of an asset which will need to be considered as part of any assessment to hold or dispose of an asset.
6.29 Social CBA and Social CEA are not relevant when the benefit of an asset sale is only public sector revenue, with no change in public service output. If there is no change in the output of public or other services, there is simply a saving in the overall public sector. The focus should then be on ensuring an efficient sale to deliver best value to public sector finances and should be registered in the financial dimension of a business case.
6.30 Valuation of financial asset sales is covered by the Green Book, except for the sale of government debt which is exempt. Financial assets are generally priced according to a valuation of their discounted income stream, using the STPR. The composition of the STPR means it excludes project or programme specific risks, so the cost of risks should be explicitly included in an intervention's cost.
6.31 A market risk premium must be estimated to price a financial asset for sale and should be added to the risk-free component of the STPR, which is 2.5%. The STPR is 3.5% and includes a 1 percentage point allowance for catastrophic risk which is excluded to give the risk-free component of 2.5% (Annex 6 provides a breakdown of the STPR). A projection of the future stream of income from the asset is also required. The variability of this income stream and the reliability of the projections will directly affect the size of the risk premium.
6.32 Potential purchasers may have other reasons for finding a financial asset attractive, such as its risk profile. This can be irrelevant to the public sector but of material value to a financial institution seeking to balance risk in a portfolio. This may increase the price that potential purchasers are willing to pay. More information on valuing financial assets can be found in Green Book supplementary guidance: asset valuation.