Step two: establish the need for government intervention

This page provides details on step two of the economic appraisal process.

Establishing the need for government intervention

2.2.1 Appraisals should establish that there is a need for government intervention, whether it takes the form of public service provision or granting of financial assistance or some other measure. The justification for intervention usually falls into one of two categories:

  • the achievement of economic objectives by, for example, addressing inefficiencies in the operation of markets and institutions
  • the achievement of equity objectives through, for instance, local or regional regeneration

2.2.2 Intervention to achieve economic objectives is justified when markets fail to use resources in the most productive way possible. This may be due to the presence of, for example, public goods, externalities, imperfect information or market power. These terms are explained in annex one of the Green Book

2.2.3 Intervention to achieve equity objectives may be justified to improve the distribution of costs or benefits among different groups according to their income, gender, ethnic group, age, geographical location or disability. The principles underlying analysis of these equity, or 'distributional' considerations, are explained in annex five of the Green Book. However, it should be noted that Northern Ireland has specific policies in this regard, including lifetime opportunities and the statutory equality obligations under Section 75 of the Northern Ireland Act 1998. See section 2.7 of NIGEAE for elaboration.

Assessing the need for individual spending projects

2.2.4 In every case, it is important to establish clearly the rationale for intervention. This is relatively straightforward when the project or other action in view is part of an established policy or programme, since the broad rationale for intervention should already be documented. However, in other instances, for example, novel or contentious cases, separate justification for intervention is required. The specific reasons for the proposed intervention should be set out in full, with suitable supporting information such as research findings and other relevant information.

2.2.5 For individual projects and spending proposals, the need to continue or develop service provision should not be taken for granted. In some cases it may be appropriate to consider scaling down provision or ceasing with it altogether.

2.2.6 Business needs should generally be reviewed. Where appropriate, details should be given of deficiencies in current services, or in the assets or other resources used to deliver them.

2.2.7 Relevant projections of the future nature and levels of demand for services over time should be provided, suitably quantified. For example, projections of school enrolments, hospital caseloads, road traffic growth, numbers of trainee places required. These future projections should be set in context by providing historical evidence of the development of need; e.g. figures for the past three to five years. Details of supporting calculations and assumptions should be provided.

2.2.8 The need for a project is related to its potential benefits but these should normally be treated separately, i.e. need should be dealt with at step two and benefits should be handled at step five and/or step seven. A description of potential benefits does not usually amount to a justification of the need for a project. All projects are undertaken to deliver benefits, and in this sense they are all benefits-driven. However, it is still generally possible to distinguish the need or demand for a particular service from the potential benefits of particular options.

2.2.9 In the case of financial assistance to the private, voluntary or community sectors, it is essential to establish that the additionality criterion is satisfied. This is explained in Section 4.3.

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