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Current Discount Rates

Published 13 Oct 2016

See also the main web page on cost benefit analysis.

In addition to the general guidance in our draft cost benefit analysis guide, the Treasury also provides specific guidance on the discount rates to be used.  These are set out below.  A technical document outlining how the discount rates were determined is also available.

The Treasury recommends that the following real, pre-tax discount rates be used, unless a project-specific discount rate can be determined on objective grounds: 

Category

Rate

Default rate (for projects that are difficult to categorise including regulatory proposals):

6.0%  p.a.

General purpose office and accommodation buildings

4.0%  p.a.

Infrastructure and special purpose (single-use) buildings:

  • Water and energy
  • Prisons
  • Hospitals
  • Hospital energy plants
  • Road and other transport projects

6.0%  p.a.

Telecommunications, media and technology , IT and equipment, Knowledge economy (R&D)

7.0%  p.a.

Technical note: These rates have been updated as of October 2016.  They are rounded to the nearest whole number and were calculated using the following assumptions:

Assumption

Rate

Statutory tax rate:

28%

Effective marginal tax rate:

24%

Equity risk premium:  

7%

Risk free rate: 

2.48% (3 October 2016)

Inflation rate: 2%
Gearing:   33% (default),
30% (buildings),
23% (infrastructure),
24% (technology)

It is intended to revise these rates approximately once a year.

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