Intergenerational effects
A6.20 Where the possible effects of an intervention being examined as part of an appraisal are long term and involve very substantial or irreversible wealth transfers between generations further sensitivity analysis is appropriate. This involves applying both the standard Green Book discount rate and a reduced discount rate (excluding pure social time preference, δ) to costs and benefits. These are shown as the "reduced rate" values in Table 8 and also decline over time in line with the standard STPR.
A6.21 When applying this approach the Net Present Social Value (NPSV) using the standard STPR and the reduced rate STPR should both be included in the results of the appraisal and explained clearly. The difference between these two estimates of NPSV provides an estimate of the intergenerational wealth transfer attributable to pure social time preference which should be part of the explanation of the approach.
Table 8. Declining Long Term Discount Rate
Year | 0 - 30 | 31 - 75 | 76 - 125 |
STPR (standard) | 3.50% | 3.00% | 2.50% |
STPR (reduced rate where pure STP = 0) | 3.00% | 2.57% | 2.14% |
Health | 1.50% | 1.29% | 1.07% |
Health (reduced rate where pure STP = 0) | 1.00% | 0.86% | 0.71% |
A6.22 In addition to declining values for the standard STPR and a reduced rate STPR further sensitivity analysis to increase transparency and visibility of long term effects can be undertaken. This involves presenting:
the average discounted annual cost of the effect over the first 30 years, alongside the calculation of UK welfare
an indication of how long the effect is expected to persist
an indication of the level of accuracy indicated by a range of reasonable values
an explanation of how the value may be expected to change in the future
A6.23 Further information on the basis for this approach to intergenerational effects can be found in supplementary guidance on intergenerational wealth transfers and social discounting.