Research and version note This is a version 0.1 research draft in The Future Has No Representative. It explains social discounting in public appraisal, does not provide investment advice, and does not assume one correct rate for every risk or jurisdiction. Policy guidance was reviewed to August 2026.
The Future Has No Representative · Article 3
Quick read
A cost of $100 occurring in one hundred years has a present value of about $3.21 at an annual discount rate of 3.5 per cent. At 7 per cent, it is worth about twelve cents in today’s calculation. The future loss has not physically become smaller. Discounting translates costs and benefits at different dates to a common basis so that resources used now can be compared with outcomes obtained later. A modest change in the rate compounds into a very large difference over long periods.
There are defensible reasons to discount. Resources can be invested now; future societies may be richer, making an additional dollar of consumption less valuable at the margin; and distant projects are uncertain. These are not the same proposition. When pure timing, expected consumption growth, the opportunity cost of capital, and project risk are merged into one number, empirical and ethical assumptions become difficult to see.
Lives cannot simply be treated as monetary cash flows. The United Kingdom’s 2026 Green Book generally applies a social time preference rate of 3.5 per cent for the first thirty years and lower rates over longer horizons. Its corresponding rate for health and life values begins at 1.5 per cent. This does not mean that life has been priced precisely. It reflects a judgment that health values do not follow ordinary consumption growth in the same way. Climate, ecosystem, and irreversible risks require distributional analysis, relative-price consideration, scenarios, and non-monetary constraints as well.
For that reason, an appraisal should show whether its conclusion remains stable across a defensible range of rates rather than publishing one present value as if the temporal choice had disappeared.
A zero rate is not automatically just. It may disregard present poverty and opportunity costs, allowing a small and uncertain benefit in the distant future to dominate urgent need now. The conclusion here is not that every appraisal should adopt the same low number. Discounting should be decomposed and explained, tested over plausible rates, allowed to decline over long horizons, and supplemented by safeguards for life, basic rights, and irreversible harm. It can assist the allocation of resources; it should not decide, inside an opaque formula, how much future people are worth.
A small percentage after a century
Public appraisal commonly translates payments and benefits in different years into a present value. In its simplest form, a future amount is divided by (1+r)^t, where r is the annual discount rate and t is the number of years. At 3.5 per cent, $100 in a century has a present value of approximately $3.21. At 7 per cent, it is roughly $0.12. Nothing has happened to the future one hundred dollars. Its weight in a present comparison has changed.
That difference can reverse a real choice. Imagine two protective designs. The more expensive option increases construction expenditure now but substantially reduces flood or contamination losses eighty years away. The cheaper design transfers risk to later operation. A high rate can make the distant loss almost disappear from net present value, causing the cheap option to prevail. A lower rate gives later damage greater present weight and can favour prevention.
Net present value is a comparison technique, not a natural law about the importance of the future. Its result depends on inputs, time horizon, discount structure, and the effects that receive monetary values. If only a final figure is published, the public cannot see why the ranking changed. A discount rate may occupy a single spreadsheet cell while carrying assumptions about growth, capital, risk, and relations between generations.
Language needs care. Discounting future money is not the same as believing that later persons have less moral standing. Yet if the same rate is applied to their deaths, illnesses, and irreversible environmental losses, a decision may have a similar practical effect. The ethical issue arises from how the formula is authorised to affect policy, not merely from the vocabulary of economics.
Why do we discount at all?
At least three kinds of reason commonly enter a social discount rate. One concerns time preference. People generally prefer consumption sooner and are cautious about whether a remote benefit will arrive. A social time preference approach connects that preference with expected consumption growth.
A second reason concerns future wealth. If an economy grows, average consumption in the future may exceed consumption today. An additional dollar may contribute less welfare in a richer society than in a poorer one. This need not mean that later people matter less; the welfare contribution of the monetary unit is different. Growth is not guaranteed, however, and an average can conceal serious inequality within the future population.
A third reason is opportunity cost. Resources committed to one public project could have been invested or used by another policy. A weak long-run project may displace hospitals, housing, or poverty reduction with greater value. Where capital is scarce and alternative returns are high, that cost is real.
Project risk is also sometimes loaded into the rate, which can make analysis obscure. Insufficient demand for a bridge, technological failure, changed climate scenarios, and the social valuation of future consumption are different uncertainties. Folding all of them into a higher rate prevents the analyst from saying which benefit was reduced and why. It is often more transparent to adjust expected cash flows, model scenarios or probabilities, and distinguish systematic risk from time preference.
The reasons also have different evidential standing. Capital returns can be observed. Economic growth over a century can only be expressed as a range. Pure time preference includes a normative choice. If an identical pain receives less weight solely because its bearer is born later, equality does not readily justify the difference. Public appraisal still needs workable parameters, but it should not conceal the mixture of empirical estimates and values.
Why the United Kingdom uses declining rates
HM Treasury’s 2026 Green Book and its supplementary discounting guidance use a standard social time preference rate of 3.5 per cent for ordinary costs and benefits in years 1–30, 3.0 per cent in years 31–75, and 2.5 per cent in years 76–125. For health and life values, the corresponding rates across those three periods are 1.5, 1.286, and 1.071 per cent. Appraisals extending beyond fifty years must also include a sensitivity analysis that excludes pure time preference; the supplement supplies a separate declining schedule for that analysis over still longer periods. A long project therefore should not extend the first thirty years’ fixed rate indefinitely.
One basis for declining rates is uncertainty about the distant rate itself. If future annual rates are uncertain, an appropriate certainty-equivalent rate may fall with the horizon. Declining schedules also reduce the compression that a fixed high rate imposes on remote consequences. They do not give the future equal weight: an outcome a century away is still discounted substantially, but less sharply than under a constant 3.5 per cent.
Health and life values receive a lower rate because their value is not expected to decline with ordinary consumption in the same way. As income rises, societies may be willing to pay more to reduce health risk. This needs careful interpretation. Government appraisal is not calculating the intrinsic price of an identifiable person. It is comparing reductions in risk and health outcomes under finite resources. Statistical life values and quality-adjusted life years remain contestable and cannot replace rights, clinical need, or distributive justice.
The UK framework also calls for qualifications and supplementary analysis. An extremely long, intergenerational, or substantially irreversible consequence should not be presented only as one net present value. Appraisal still has to identify effects lacking reliable prices, examine who gains and who pays, and test different assumptions. The rate forms part of the appraisal; it is not an automatic permission to proceed.
What the Australian example shows
Australian Government Office of Impact Analysis cost–benefit guidance previously identified a 7 per cent central real discount rate and required sensitivity testing at 3 and 10 per cent. Its environmental valuation guidance also sets out a declining schedule for effects beyond thirty years. Compared with the UK social time preference rate, 7 per cent gives much less present weight to distant consequences.
The date qualification is important. As of August 2026, the OIA cost–benefit analysis page states that the former Regulatory Impact Analysis framework ceased to be current from 1 July 2026, following the introduction of the Australian Government Policy Impact Analysis Framework, and that guidance is under review. This article therefore uses the published figures as an example of parameter choice rather than describing them as the final mandatory rule for all current Australian policy.
That transition itself demonstrates that a discount rate is not a constant outside institutions. Governments may emphasise social time preference, the opportunity cost of capital, or sector-specific conditions differently. A comparison of 3.5 and 7 per cent alone does not establish which system values the future more. One must ask which flows the rate applies to, whether it is real or nominal, whether it declines, and how risk and distribution are addressed.
The former Australian guidance also made the useful point that impacts important to future generations should be discussed explicitly rather than represented by an arbitrarily lower rate chosen to show concern. Analysts should not alter a parameter covertly when a preferred outcome fails. If an ethical limit cannot be expressed by net present value, it should appear openly as a decision criterion.
Can life enter the same present-value table?
Public policy has to compare health, road safety, environment, and other expenditure. Refusing all quantification can make decisions more arbitrary. If a road modification can substantially reduce fatality risk at modest cost, government needs to know its effect. Describing every life risk as priceless may direct resources toward the loudest political demand instead of the intervention that protects most effectively.
The trouble is conceptual slippage after monetisation. Willingness to pay varies with income, so affluent populations can express larger monetary values. An average statistical value does not mean an identifiable person’s life can be bought for that amount. The number and location of future people are uncertain as well. A long-term environmental health risk cannot be fully judged by multiplying a population by a monetary average and discounting the product.
At least three layers are required. Quantitative analysis compares preventable deaths, illness, and resource costs. Distributional analysis asks who bears risks and whether they are concentrated among poorer, remote, or politically weak groups. A rights-and-threshold analysis asks whether certain basic protections may be withdrawn simply because net present value is negative. The layers can conflict; decision-makers should explain the trade rather than letting one suppress the others.
Expected value may also be inadequate for irreversible or catastrophic risk. A very low-probability event causing damage across generations that cannot be repaired is not necessarily made acceptable by averaging and discounting its loss. Precaution, resilience, and safety boundaries may be needed in addition to a decimal probability.
A low rate also has costs
The criticism of high rates is powerful, but setting the rate to zero does not make policy automatically fair. If every benefit in a century has the same temporal weight as a present benefit, a very large and uncertain future population may dominate the calculation and overwhelm basic needs among living people. Those in poverty now may be asked to sacrifice for a project whose gains mostly reach wealthier descendants.
A zero rate also ignores alternative uses of resources. Land, labour, and capital committed to a weak long-term project cannot simultaneously provide vaccines, housing, or more effective adaptation. Concern for successors includes avoiding the inheritance of bad assets, not simply maximising the quantity of investment.
The choice is consequently not a binary one between discounting and refusing to discount. The questions are why each effect loses weight, who carries the risk in that assumption, and how sensitive the conclusion is to the rate. A project that succeeds only within an unusually narrow parameter range is already less robust.
Policy can also use staged decisions. Initial investment may produce benefits now while preserving the ability to expand or change course as observations arrive. Staging does not resolve the ethics of discounting. It reduces the risk that one present calculation locks a century into the wrong path.
Provisional judgment: do not hide ethical choices inside one percentage
Discounting is a necessary but limited institutional tool. It brings resources at different dates into a common analysis and records that investment today has opportunity costs. If appraisal rejects it entirely, projects will still compare time through some less explicit mechanism.
The rate should not carry the valuation of future life on its own. Analysts should disclose its components and objects, show how conclusions move under several defensible rates, use a justified declining schedule over long periods, and model project risks through scenarios and cash flows rather than automatically raising the rate. Health, basic rights, ecological thresholds, and irreversible harm require judgment outside net present value.
This is directly connected to the series’ question. Future people cannot challenge whether we chose 7 or 3.5 per cent, yet that difference may determine whether their exposure becomes almost zero in today’s table. Present decision-makers owe more than the calculation. They need to explain why its time structure is defensible to those who cannot participate.
Discounting does not make the future smaller. It changes how much action the present is willing to take for it. Because a percentage can acquire that institutional power, it should remain visible, contestable, and reviewable rather than being left in a technical annex to complete an unacknowledged social choice.
Primary sources and further reading
- HM Treasury, The Green Book 2026, especially the discounting guidance.
- HM Treasury, Green Book supplementary guidance: discounting.
- HM Treasury, Green Book discount rate review 2026.
- Australian Government Office of Impact Analysis, Cost–benefit analysis, including the 2026 transition notice.
- Australian Government Office of Impact Analysis, Environmental valuation and uncertainty.
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