Guidance on Costs and Benefits

Part of New clause 3 – in the House of Commons at 5:30 pm on 27th June 1995.

Alert me about debates like this

Photo of Mr Cynog Dafis Mr Cynog Dafis , Ceredigion and Pembroke North 5:30 pm, 27th June 1995

I wish to associate myself very strongly with the anxieties that have been expressed about clause 38. I wish to support the spirit of amendments Nos. 29 and 3—and amendments Nos. 13 and 14, which originated from the Liberal Democrat Benches, but which were not selected. I shall speak to my amendment, No. 252, which would provide a useful safeguard if the Government were to insist on retaining clause 38. It is obvious to me, as it is to other people, that the consideration of the costs and benefits of any action is simply a matter of common sense. Of course costs and benefits should be considered. Obviously, it would be absurd to go to enormous cost to achieve an insignificant environmental benefit.

I welcome some of the statements that have been made by the Secretary of State about the issue of costs and benefits, because he has emphasised a new interpretation of them, different from the one with which we have become familiar. Rather than emphasising the need for environmental benefits to be justified in terms of economic cost, he has emphasised the other approach—the need to consider carefully whether any economic benefit can be justified in terms of the considerable environmental cost that it might entail. That is a useful interpretation of the idea of costs and benefits. It has contributed to a fuller understanding of the subject. However, I would strongly question, as others have done, the need to state on the face of the Bill what is a matter of common sense.

I wish to go further, and consider the issue of cost-benefit analysis as distinct from merely considering costs and benefits, because it is not quite the same thing. I have grave reservations about the use of cost-benefit analysis for any purpose. I regard it as a spurious sub-discipline of conventional economics, attempting to encompass considerations that properly belong to the fields of natural science and ethics.

Conventional economics is in deep trouble these days, and it has great difficulty coping with the revolution in understanding that environmental politics brings to us. So there it is, trying to encompass that difficulty, or to modernise itself, as it were, by inventing what I regard as a spurious sub-discipline. It does so by monetising considerations which cannot and should not be quantified in monetary terms, because to try to do so produces ridiculous distortions and wrong decisions.

I shall mention a couple of examples. One is the way in which the Welsh Office highways directorate considers road schemes and uses cost-benefit analysis. The Welsh Office approach to that has been very effectively demolished in the Council for the Protection of Rural Wales document, "Wales Needs Transport not Traffic", which merits careful study. Specifically, that document says: The only way environmental costs enter the equation"— in the cost-benefit analysis— such as the damage done to a site of special scientific interest or an area of outstanding natural beauty, is as a capital cost of land acquisition. Because such sites are often of poor agricultural quality, this cost is usually low, when it should be very high. Even worse, the cost of acquiring an SSSI is actually reduced because the designation as an SSSI imposes constraints on the possibility of development, so it reduces its development value, reduces its market price and, in a perverse way, creates an incentive to put a road through it. That is an extraordinary situation.

It might be argued that the way to correct that is to place a monetary value on the scientific or aesthetic worth of the SSSI or the area of outstanding natural beauty. However, the question is how to do that, and the fact is that it cannot be done. Any attempt to do so will merely give spurious objectivity to an assessment that cannot be subject to objective measurement. The aesthetic or scientific value of an SSSI is not subject to objective measurement.

Some time ago, I discussed a far worse example of the use of cost-benefit analysis—as I trust that one of the Ministers will remember—in the Adjournment debate that I initiated on climate change. I have had correspondence with his Department following that debate. Cost-benefit analysis is being used by economists in the United Nations intergovernmental panel on climate change to consider what actions might be appropriate to tackle global warming. That research is being given international credence and is partly funded by United Kingdom public moneys. In the process, it is being suggested that the cost to American gross domestic product caused by reducing automobile production in order to reduce greenhouse gas emissions is greater than the benefit of saving Bangladeshi farmland, on which many thousands of people depend for their subsistence.

Even more serious, and scarcely credible, but nevertheless true, is the fact that the IPCC economists, some of whom are UK economists, are ascribing differential values to human lives and feeding calculations based on such valuations into the consideration of whether specific actions are cost-effective and therefore worth implementing. Typically, an American life is valued at 10 times a Bangladeshi life. That is in the documentation—that is the type of thing that is going on. The Secretary of State, to his credit, is on record as rejecting that opinion. He stated in a question session that he believed that all human lives were of equal value. It is nice to have that type of confirmation.

The question is whether the clause requires the use of cost-benefit analysis. Unfortunately, the draft ministerial guidance to the Environment Agency gives its approval to the use of that spurious sub-discipline. It says: The use of risk analysis techniques and formal cost benefit analysis may be a useful aid to such consideration in appropriate cases. I do not believe that it is, although the guidance goes on to qualify that in a way that I welcome. It says: Costs and benefits which are unquantifiable or which cannot readily be given monetary valuations should also be considered". It therefore suggests that cost-benefit analysis is done first, and then one considers the environmental value separately from the cost-benefit analysis. In those circumstances, what validity does the cost-benefit analysis have? In any case, it falls well short of discrediting cost-benefit analysis as a valid academic discipline, which is what is needed.

The dangers of applying cost-benefit analysis to the duties of the agency are illustrated by an example provided today in a briefing document by the Royal Society for the Protection of Birds. It mentioned that a cost-benefit analysis study was commissioned by the National Rivers Authority to consider options for tackling a loss of about £15,000 per year of winter wheat as a result of flooding in Kent. The cost-benefit analysis led to the conclusion that the installation of a land drainage pump at the outfall of the Capel Fleet—I assume that that is a river—should be carried out, at a cost of £250,000. The key is that that decision—to take action—was arrived at by including no costs to the environment and no benefit to the environment from pursuing the option of creating wildlife habitats.