Inclusion has undertaken cost-benefit analyses both as part of evaluations and as part of appraisals of likely cost-effectiveness. We follow as far as is possible the Treasury advice contained in the Treasury Green Book.
The method of cost-benefit analysis conducted as part of evaluations builds upon the net additional effect found in impact analysis so that the costs of the initiative relate to the additional benefit over standard provision, taking into account any substitution of costs between standard and initiative provision.
Some modelling is usually required, as the actual changes in benefits, tax credits and earnings are rarely observed. Therefore entitlements may be used (on the basis that many of the initiatives we evaluate include advice on entitlements to in-work benefits). Where there is information about job sustainability in evaluations, this can be included so that benefit savings are adjusted using a discount factor as advised by the Treasury to take into account the known sustainability of employment and earnings progression.
Cost-benefit analysis in appraisal is forward-looking, and examines the relevant factors needed to ensure that initiatives produce net financial benefits (taxes, benefit saving, taking into account tax credits, costs of provision). The use of a discount factor as advised by the Treasury represents the cost to the public purse of borrowing money to invest in the initiative. The examples we have studied have emphasised the importance of job sustainability, and progression, measured as earnings increases, in work. High-cost programmes could be justified in cost-benefit terms if they aim to, and succeed in, helping people to remain in work for a long time (measured in years, not months) and to progress so they are financially independent of benefit or tax credit support.
Previous projects using these methods:
• Working Future
