13 February 2026
If you strip it back, the idea of a public good is actually pretty simple, but its implications for government decision-making are huge.
A public good is something that is both non-rivalrous and non-excludable. Non-rivalrous means my use of it doesn’t reduce yours. Non-excludable means it’s hard (or impossible) to stop someone benefiting once it’s provided. Classic examples include street lighting, flood defences, clean air, and national defence.
The problem? Markets struggle to supply these efficiently.
If a good is non-excludable, private firms can’t easily charge for it. That creates a “free rider” problem. People wait for others to pay, knowing they’ll benefit anyway. Because firms can’t reliably capture revenue, they under-provide, or don’t provide at all, even where society values the good highly. That’s textbook market failure.
And this is where public sector frameworks are designed to kick in.
Under the Treasury’s Green Book guidance, intervention is justified where there is a clear market failure and where action can improve overall social welfare. Public goods sit squarely in that territory. The Green Book makes clear that the economic case for intervention rests on identifying a rationale such as market failure, distributional concerns, or equity objectives. It must then demonstrate the intervention would deliver net social value compared to doing nothing.
So the logic chain runs like this: There is a public good > markets under-provide > society is worse off > intervention may be justified.
But Treasury doesn’t stop at “may”. It asks three deeper questions: is intervention efficient, equitable, and prudent?
Efficiency is about value for money and net benefit. Public goods typically generate positive externalities. These are benefits beyond the individual user. Government funding allows those wider benefits to be captured in appraisal. Cost-benefit analysis, as required in business cases, explicitly counts these social returns. If the social benefits exceed the social costs, intervention is economically efficient.
Equity is about fairness. Markets allocate according to ability and willingness to pay. Public goods, by definition, benefit broad populations. Funding them collectively through taxation spreads costs and ensures universal access. That aligns with distributional objectives, particularly where access to the good underpins opportunity. For example, basic infrastructure or environmental protection.
Prudence, in UK public finance terms, relates to responsible stewardship of public money and long-term sustainability. This is where Accounting Officer Assessments come in. Accounting Officers must personally assure Parliament that spending decisions meet four tests: regularity, propriety, value for money, and feasibility. When government intervenes to correct a market failure, it must not only show that the economics stack up, but also that the proposal is deliverable and legally sound.
What’s important here is that public goods are not a political preference in this framing. They are an analytical category. The Green Book requires a structured comparison of options, including “do nothing”. If the market alone cannot supply efficiently, then non-intervention is itself a choice but one that can carry a welfare cost.
There’s also a subtle but important point: intervention doesn’t always mean direct state provision. It could mean regulation, subsidy, co-production, or commissioning. The objective is to correct the failure, not crowd out functioning markets.
In short, guidance doesn’t assume government should intervene. It sets a disciplined process for determining when it should. Public goods are one of the clearest cases where that threshold is often met.
Markets are powerful mechanisms. But where goods are non-rival and non-excludable, the invisible hand struggles. That is precisely why the public finance framework exists and is required to decide when collective action is not only desirable, but efficient, equitable and prudent.