Transcript - Episode 18: The importance of capturing wider wellbeing benefits in public sector investment decisions

Hannah Audino: Hello and welcome to our latest episode of PwC’s Economics in Business podcast. I am your host Hannah Audino, and today we will be talking about how to capture the wider impacts, whether its wellbeing or climate change, in public sector investment decisions. In our last podcast, I talked to Priya and Ioanna about how more and more companies are looking to understand wider impacts with their decisions and build strategies around this. In this podcast, we will be talking about this from a government perspective.

Today, I am joined by Alisha Kapoor and Ioanna Sikiaridi, who work in our economics team, and help government and industry to understand the wider implications of policy changes and investment decisions.

Thank you both for joining me today.

Ioanna Sikiaridi: Hi Hannah, thanks for having me again.

Alisha Kapoor: Yeah, and thanks for inviting me Hannah.

Hannah: Hi Alisha, your first time on the podcast!

Alisha: Yeah.

Hannah: Kicking off, Ioanna, can you tell us a bit more about what the government has been doing to reflect this trend?

Ioanna: Yeah sure, here in the UK the government has long tried to incorporate wider impacts beyond standard economic impacts, say like jobs and employment, in decisions around public spending. Here in the UK, the Green Book and the Magenta Book, which have been around for quite some time, and are published by the treasury, essentially have a set of formal guidelines on how to appraise and evaluate policies and projects to ensure that resources are used to maximise public benefits. They already identify a set of equality and distribution effects as key considerations and describe a set of methodologies that can be used to understand and try to estimate and monetise this wider impact.

Hannah: Beyond this formal green book guidance, what else has the government been doing to use wider impacts in public sector decision making. Alisha?

Alisha: For me there are couple of things that come to mind. Towards the end of last year, the government actually had a consultation on how to measure human capital and what I mean by this is, the value of training or the value of vocational courses that go beyond earnings and employment. In addition, the government is also looking at its own supply chain and trying to think about how they can account for social value when they award central government contracts. So, what do we mean by social value? For example, the proportion of SMEs in the supply chain, the proportion of under-represented groups and assigning a monetary value to this. Also, social value would capture things such as mental health and wellbeing outcomes. All of these show that the UK government is moving towards a world where wider impacts are accounted for in their decision-making.

Hannah: From what I’ve seen, New Zealand are leading the way in this with their new wellbeing budget, which requires spending to go towards wellbeing goals, such as boosting mental health and improving child wellbeing. What does this mean in practice, is GDP not relevant anymore?

Ioanna: Wwe usually think of a country’s wealth or capital in terms of its financial bottom line, so gross domestic product (GDP). As you said, we’ve seen recently that New Zealand challenged the world to assess it in terms of different way, by publishing its first wellbeing budget. To the Prime Minister, the purpose of government’s spending is to ensure citizens’ health and life satisfaction and not wealth or economic growth, and is the metric by which a country’s progress should be measured. The Prime Minister of New Zealand said it quite nicely, when she said that ‘GDP alone does not guarantee improvement to our living standards and nor does it take into account who benefits and who is left out.’ That’s not to say that GDP is not relevant anymore, but it is to say that we need to find ways to try to incorporate this wider impacts into decisions around public spending.

Hannah: Alisha, can you tell us what some of these other measures might be?

Alisha: Yeah, sure. Government bodies are trying to look at how they can capture some of these other measures, and try and understand why GDP may not always be a holistic measure. Let me give you an example of another measure. Recently, we were trying to help transport appraisers in the UK account for wider societal implications. Transport appraisers look at what the impacts are of a transport investment. Transport investments can have implications for the labour market and so could lead to changes in the amount of leisure time a person has. This wouldn’t be captured in GDP, but it would be captured in welfare and this is why there is increasing recognition of what these other measures can do and why they should be assessed against GDP to try and understand where we should invest our money.

Hannah: What implications does this trend of accounting for these wider impacts have when making bids for government funding or contracts.

Alisha: If you think about it in practice, most policies investments will lead to material impacts which go beyond the typical economic impacts Ioanna mentioned earlier. It is important for firms to reflect these impacts in their cases. Thinking of a recent project we’ve been working on, we’ve been helping a large UK transport body to develop a business case for smart ticketing in the North of England. The benefits which typically would have been monetised when looking at transport investment is time savings, but time savings wasn’t the reason why they were implementing contactless payments in the North of England, it was ultimately to improve customer experience. These customer experience benefits actually ended up being our largest benefit area and what’s interesting is 20 years ago this probably wouldn’t have been monetised in the business case. If it wasn’t accounted, it could have led to investment in a program which had lower benefits relative to the cost, in times when public finances really are tight, it becomes even more important.

Hannah: The importance of considering wellbeing and their social impacts is clear. Let’s move on to talk about how you help your clients to understand these impacts, Ioanna?

Ioanna: The public sector, especially in the UK, has long looked at ways of assessing cost and benefits from a wider perspective. Often we will help them with trying to use tools and methodology to try to capture these wider impacts, some of which Alisha pointed out just now. Similar to our discussion in the last podcast, we have also seen increasing demand from private sector clients, looking to understand and communicate their contribution to society. On the back of that we developed our total impact measurement and management or team methodology. From both public and private sector perspective, we can help our clients using some of the techniques and tools we have developed to try to estimate and monetise these wider impacts.

Hannah: What are the some of the most common questions that clients come to you with?

Ioanna: There are a whole variety of questions, but let me just focus on one, and then perhaps Alisha can do the same from her own experience. The first thing that we help clients understand is their total impact on the economy and society. So, how do organisations policies and investments benefit a whole range of stakeholders, from their customers to citizens and society.

Just to give you an example, we worked with a large international sports organisation, who was trying to develop a framework to be able to understand the cost and benefits of hosting an international sport events, from economic, to societal, to environmental benefits.

Alisha: Another question which clients often come to us with is, they want help when they are preparing the five business cases for investment when they go to government. What they are trying to do here is demonstrate value for money. So, Ioanna and I tried to apply this total impact mindset to capture the reason behind that strategic change. In the North of England, it was customer experience as I had talked about earlier.

Hannah: For me, one of the most interesting and important projects that our team has worked, is work on homelessness in the UK. Can we talk through that example Alisha?

Alisha: Yeah sure, it’s a great example. Ioanna and I actually worked on it together. Let me try and summarise the question. Our client was a UK-based homelessness charity, and they essentially had a plan to end homelessness by 2050. The question which the client came to us with was, how can we assess the cost and benefit of supporting people and moving them out of homelessness?

Hannah: How did you go about answering this question?

Alisha: At a high level, it was essentially developing a set of impact pathways to understand how each intervention would help different groups. That’s a lot of jargon. Let me take you through an impact pathway. Someone is homeless, and you move them out of homelessness into secure permanent housing, what’s the effect of that relative to if there was no change. It could lead to a reduced demand for temporary housing, that’s the outcome, that’s what changed. The impact of this is that there is reduced spending by local authorities on temporary accommodation. When you start to do a number of these impact pathways, it really is interesting and paints kind of a holistic picture of what the effect of that change is.

Ioanna: Yeah, that’s a great example that illustrates how we use some of our techniques, methodologies and economic theory to help our clients. Another example is the one I mentioned earlier, where we worked with an international sports organisation. I can give you just a bit of context before going to how we helped them. Our client was facing challenges in terms of attracting prospective cities to host these events. As we discussed earlier in the podcast, there is limited public resources, increasing scrutiny from taxpayers, and that means that the whole cities need to better understand where they are investing government resources to host such event, represent good value for money, compared to say investing these resources in education or health.

Hannah: Yeah absolutely, a very important consideration for governments. How did you help them do this?

Ioanna: Yes, exactly, following up to what Alisha was saying, we helped them by trying to develop a framework to be able to capture these wider benefits and costs. We did that by developing impact pathways to be able to understand how different stakeholders would be affected. The important thing about this is that, it enables you to be able to capture, costs and benefits beyond economic cost of constructing a stadium, building roads to host the event, to things like, does it have an impact on community cohesion, and can it have an impact on health through increasing sports participation of citizens. It is really important to be able to use this framework to communicate with your stakeholders and that can be the citizens, or it could be your government partners, or your private sector partners.

Alisha: That really links to what we are doing for the homelessness charity in a way, the whole purpose behind our work, was to try and communicate to government stakeholders, why this plan required funding.

Ioanna: Yes exactly, as we have mentioned also in the previous podcast, it’s often difficult to quantify some of these things, but having a framework and using that to develop case studies, for example, from previous experiences is definitely useful when you are trying to build a holistic picture.

Hannah: Yeah, I am sure this example resonate a lot to governments across the world, who are facing pressure to allocate limited resources.

Alisha: Yeah definitely - and the UK government has taken a step towards wanting to understand the full picture when they are looking at policy changes in investments they make. What this means in practice is, when they were assessing business cases, it is no longer enough, break the public and private sector to just assess and monetise traditional economic benefits, they have to capture the wider impacts on society. Ioanna and I have seen that over the last couple of years, and there is increasing demand from clients to capture impacts, which underpin the strategic reason behind the change.

Hannah: Well that’s a great summary of this discussion, Alisha.

That brings us to end of our discussion today.

If you would like to read more about the work that Alisha and Ioanna, and the team have been doing, and how it might be able to help you develop a business case, to look at the wider impacts, have a look at our impact assessment page on our website, the link in the bio.

You can also read more about our work on how the government can create a fair and inclusive future for UK citizens at PwC’s Future of Government campaign.

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