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Discount Rates

In addition to the general guidance in our 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 below.

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 are only changed if a calculated rate differs by more than 1 percentage point from the current published rate. The rate is then rounded to the nearest whole number. The rates have been updated as of May 2018 (no change was made) 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: 

2.81% (21 May 2018)

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

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

Last updated: 
Friday, 22 June 2018