Government Time Discounting and Required Rates of Return: UK History and Current Issues

06 June 2013
By Michael Spackman

The UK government first set financial objectives for the nationalized industries in 1961, and subsequently promoted the use of "discounted cash flow" for investment appraisal. The nationalized industry regime evolved until, in the 1990s, it was succeeded by economic regulation regimes for the privatized utilities. Meanwhile, discounting conventions emerged and have continued to evolve for wider government policy analysis, including aspects of climate change. In this article from Economic Affairs, NERA Affiliated Consultant Michael Spackman notes that issues about the size and functions of public expenditure notwithstanding, UK government conventions are currently fairly uncontroversial. However, he points out, in the world at large, government discounting remains subject to many academic and international controversies and misunderstandings.