Government services: Identifying costs and generating income

The Treasury has been too passive in its oversight of fees and charges resulting in large surpluses and deficits which unfairly impacts taxpayers and potentially future service users. The Treasury’s current oversight of fees and charges is through its spending teams and during Spending Reviews. This arrangement is ineffective, as over the five-year period from 2019–20 to 2023–24, none of the seven services 3 we looked at consistently charged the correct amount to reflect actual service costs. Notably, passports and family court fees have repeatedly missed cost-recovery targets by more than 10% for five consecutive years. Persistent imbalances between fees and costs creates risks for the resilience of public services and place a burden on taxpayers, who may need to subsidise under-recovering services. Those paying fees can be unfairly charged. For example, current users may be overcharged, or future users can face higher fees to cover accumulated deficits due to past undercharging. For instance, HM Passport Office had a significant shortfall of £223 million in 2023–24, contributing to a total deficit of £916 million over five years. The Treasury accepts that its approach has been too passive, and engagement with charging bodies is reactive rather than proactive in overseeing cost recovery. recommendation To ensure sufficient scrutiny over charged services and to support bodies to achieve their cost-recovery targets, the Treasury should: a. Introduce an annual review cycle within 12 months for all charged services covering service design, consent status and implications for fairness to taxpayers and current and future service users and fee payers. b. Conduct targeted and proportionate deep-dives with bodies that have missed their cost recovery targets by more than 10% in two consecutive years and publish a time-bound recovery plan with clear milestones.

The Treasury and Department processes for changing fees are too slow and complex, which makes it harder for bodies to manage effectively their service costs and fee revenues. The case study services took an average of 63 weeks to change their fees. This results in long periods where their fees do not align with current costs, making effective cost-recovery difficult. Parliamentary scrutiny is required for secondary legislation which, while vital for accountability, adds complexity and uncertainty to the timeline that is outside of departmental control. The decision-making process is cumbersome, with multiple layers of approvals from parent departments and the Treasury which are not always proportionate to the risk or scale of change, such as routine inflationary adjustments. Timeliness is further hindered in some cases when departments do not provide sufficient detail in their proposals, making it harder for the Treasury to assess them effectively. The Treasury recognises the need to simplify this process and plans to introduce a standardised template to support the completeness of submissions for informed decision making. Once the Treasury has made improvements to 4 streamline the process while maintaining appropriate safeguards for over- recovering services, they should also consider consolidating legislation and deregulating parts of the process to enable routine adjustments. recommendation The Treasury should write to the Committee within six months setting out a detailed plan to reduce the time and complexity involved in amending fees. A new system should encourage proportionate and incremental changes to fees and not disincentivise departments from making efficiencies which would enable fixed or reduced fees. This plan should indicate when the new arrangements will be in place and include: a. Standardised approval templates and timelines; risk-based consultation and oversight principles, and b. A legislative review to remove unnecessary barriers and enable pro

Charging bodies do not publish adequate or consistent information on their fees and charges to allow for effective public scrutiny and accountability. The Treasury sets out in both Managing Public Money (MPM) and the Financial Reporting Manual (FReM) the information departments must disclose on fees and charges in their annual report and accounts. However, inconsistencies between these documents creates ambiguity about what needs to be reported and the required level of detail. Partly as a result, none of the case study bodies fully met the Treasury’s disclosure requirements in 2023–24. The information in department annual reports is not sufficient for users to understand what they are being charged for; for instance cross-subsidising is not always transparent, and the aims of charges are often unclear. The presentation, depth and metrics disclosed by charging bodies vary considerably, limiting comparison and understanding for the public, the Treasury, and Parliament. recommendation The Treasury should set, by March 2026 in time for the next financial year, proportionate and standardised reporting requirements for fee-charging public bodies. These requirements must enable effective public and Parliamentary scrutiny by ensuring at a minimum that each body publishes: • how fees are calculated; 5 • the cost-recovery targets and actual performance with an explanation of any variance; • and the breakdown of costs included in fees, clearly identifying any cross-subsidies or costs included to support other areas of government.

The Treasury’s system for fees and charges has failed to incentivise cost reduction or productivity improvements, leading to missed opportunities to improve services. Where charged services aim to recover all costs, any potential savings would be passed on to the fee- payers, while the risk associated with business change remains with the charging body. This discourages investment in efficiencies and innovation in areas such as digital transformation. However, DVLA is an exception, holding fees at 2014 levels by absorbing inflation through digitisation of its services, while also improving service quality. The Treasury recognises the potential benefits of emerging technologies, such as Artificial Intelligence, to modernise legacy systems and reduce administrative overheads; however, departments need clear incentives and realistic plans to adopt such technology. The Treasury’s current approach is largely reactive, relying on accounting officers to meet efficiency targets set during the spending review and the only incentive for bodies is they can reinvest the efficiency savings made. The Treasury needs to take a more proactive approach to encourage departments to pursue transformation and improve productivity within services. Revised guidance alone is unlikely to effect change unless departments are also incentivised to invest in productivity improvements to reduce costs and improve service delivery for users. recommendation The Treasury should, by March 2026, publish a plan to embed incentives for efficiency in the fee-setting framework. This plan must include explicit incentives to reward departments that improve productivity and modernise services for users through digital transformation and innovation. 6 1 Treasury oversight of the fees and charges Introduction

On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury), the Driver and Vehicle Licensing Agency (DVLA), and Ministry of Justice (MoJ) on the financial management of fees and charges across government.1

The NAO reported that Treasury places primary reliance on individual department’s accounting officers to monitor their fees and charges. Accounting officers are responsible for maintaining effective governance and internal controls, including ensuring that fees are set appropriately and disclosed in-line with Treasury guidance.7 The Treasury highlighted that one of the challenges with this approach is that everyone is doing things in silos resulting in inconsistency across government.8 We asked the Treasury what it is looking to do to help strengthen the arrangements to improve oversight of fee setting.9 The Treasury told us it intends to do more to help accounting officers by regularly assessing and looking at the system, as well as help departments navigate it using best practice.10

The NAO highlighted that government bodies would like practical examples of how to address common operational problems, such as forecasting user demand, or when and how to reflect inflationary pressures, so they can consider options on how best to handle them.11 The Treasury recognises that charging bodies face issues and need to make trade-offs, and stated that it is important Treasury shares best practice on how to manage these from its perspective.12 The Treasury told us it has since strengthened its guidance in Chapter six of MPM, and will provide more clarity about what should be considered when looking at setting fees. The Treasury believes these 5 C&AG’s Report, para 1.4, 2 6 C&AG’s Report, para 3 7 C&AG’s Report, para 2.25 8 Qq 29, 46 9 Q 28 10 Qq 6, 26 11 C&AG’s Report, para 3.3 12 Q 48 8 improvements will also allow its spending teams to guide departments though the process with clarity on the guidance and to provide constructive challenge and timely change.13

We heard charging bodies would value more signposting of where to go for expert advice and support and to learn from others’ experience. DVLA told us that more can be done to share good practice and that it is important to get those responsible for fees together to talk about what they are doing and some of the challenges.14 We asked the Treasury, given it has oversight across all the bodies that are setting the fees and charges, how it can help them learn from each other by sharing good practice. The Treasury told us that it has recently set up a working group in the Government Finance Function to share best practice on fees and charges and to be a feedback mechanism for the Treasury. The Treasury agreed that learning from best practice is helpful in terms of setting out things that departments should consider as standard.15 Strengthening oversight to improve financial management

The NAO reported that of the seven services examined, six aimed to achieve 100% cost-recovery, but these six averaged only 88% recovery in 2023-24, leading to a shortfall of £340 million.16 The Treasury acknowledged that it has perhaps been too passive, relying primarily on accounting officers. Treasury accepted that it now needs to adopt a more systematic approach to monitoring, assessing and supporting departments in setting fees and charges. The Treasury told us it plans to improve regular assessment, transparency, efficiency and sharing best practice.17

Over the five-year period from 2019-20 to 2023-24, none of the seven government services reviewed consistently met their cost-recovery targets. Poor cost-recovery persisting over time results in a build-up of surplus and deficits in some services. Both passports and family court fees have repeatedly missed their cost-recovery targets by more than 10% each year over this five-year period.18 We asked the Treasury how it will help government bodies manage the persistent deficits and surpluses more proactively in the future. The Treasury told us that it plans to 13 Qq 26, 28, 30 14 Qq 27-28; C&AG’s Report, para 3.3 15 Qq 27, 28, 46 16 C&AG’s Report, paras 8, 2.21 17 Qq 26, 46, 18 C&AG’s Report, para 2.21 9 introduce more regular reporting, promote greater professionalism, and standardise practices to ensure a more systematic approach to fees and recovering costs.19

Significant imbalances between fees and costs pose risks to the financial resilience of public services and create unfairness for the public. The NAO reported that the passport service has been underrecovering since 2017-18 without explicit approval from Home Office Ministers or HM Treasury. This has led to a deficit of £223 million in 2023-24 and a total deficit of £916 million over the five-year period from 2019-20. However, Home Office is yet to agree a strategy or timeline with the Treasury to address their ongoing deficit.20 We asked the Treasury about the consequences of unplanned surpluses and deficits. The Treasury informed us that if departments don’t recover costs through their fees, departments need to absorb the unfunded costs within its existing budget, otherwise the cost of a particular government service will come from general taxation.21 This is unfair to taxpayers when they subsidise services that should be funded by users receiving the service.

The NAO report highlighted that persistent imbalances can also create potential inequities for users. When government bodies undercharge for services, cumulative losses are often recouped through higher fees for future users. Conversely, when services over-recover, current users end up overpaying.22 We were interested to hear how the Treasury make sure users are not unfairly affected. The Treasury acknowledged this is a challenge and hopes to address this through stronger incentives for departments to encourage lower costs through efficiencies.23

The Treasury told us it manages its fees and charges through periodic spending reviews (typically every two years) and expects accounting officers to follow its guidance. The Treasury described the spending review as a mechanism for departments to assess their cost base and funding needs, including their approach to fees and charges.24 MPM requires that where ministers decide to charge less than full cost, there should be an agreed plan to achieve full cost recovery within a reasonable period, with Treasury consent.25 This principle has not been complied with or 19 Qq 60-65 20 C&AG’s Report, para 2.25 21 Qq 51-53, 55 22 C&AG’s Report, para 2.25 23 Qq 67-69 24 Qq 26,28 61-63 25 HM Treasury, Managing Public Money, June 2025 10 monitored effectively. The Treasury told us that, where bodies are under or over-charging, it will review whether they are doing that by design and with required consent, and that it will examine the implication of this.26 26 Qq 8, 40 11 2 Supporting effective financial management Streamlining the process to amend fees

The process for amending fees across government is slow and complex as certain public bodies took an average of 63 weeks, with the longest case taking over two years. This undermines financial sustainability because it makes it harder to recover costs. This delay is because bodies must first secure approval from their parent department and then the HM Treasury before preparing secondary legislation for Parliamentary scrutiny. The absence of standardised data requirements also leads to a ‘back and forth’ between departments, arm’s-length bodies and the Treasury, which prolongs the process and limits transparency over whether fees reflect the true cost of services.27

The NAO reported that the current timing of the process can result in fees that fail to keep pace with changing costs, particularly during periods of high inflation.28 The Ministry of Justice (MoJ) informed us that its latest fee change took around six months to complete and it is exploring annual reviews incorporating routine inflationary adjustments.29 The Driver and Vehicle Licensing Agency (DVLA) described a multi-stage review and approval stages before changing fees using legislation, which it explained is time-consuming. It highlighted its use of the section 102 order of the Finance (no 2) Act 1987 referenced in Managing Public Money (MPM)30, which provides a degree of flexibility to balance costs across services and reduce the need for frequent fee changes.31

The Treasury acknowledged that the decision-making process is time-consuming and disproportionate for low-risk, routine adjustments like inflation-linked increases. It told us it will introduce a standardised template, adopted from the Environment Agency’s approach, with the aim of improving completeness and consistency of departmental proposals. This change is intended to reduce delays caused by incomplete information 27 C&AG’s Report, paras 2.13, 2.14 28 C&AG’s Report para 2.14 29 Q 10 30 HM Treasury, Managing Public Money, June 2025 31 Q 12 12 and help spending teams to have better conversations with departments about the justification for different levels of fee charging.32 The DVLA and MoJ support moving towards more standardised reporting, suggesting that clearer templates would help streamline the process.33 Following the evidence session, Treasury wrote to us to share a draft of the template it plans to distribute formally via a Dear Accounting Officer letter.34

The Treasury highlighted that the legislative scheduling adds uncertainty, particularly where secondary legislation must compete for Parliamentary time. We asked if the process could be simplified without diminishing parliamentary scrutiny, such as through consolidation of primary legislation to remove the need for secondary legislation. The Treasury told us this is an option it can look into as it agrees there is scope to streamline the process in terms of speed and efficiency without compromising accountability. Another consideration the Treasury highlighted is the section 102 order of the Finance (no 2) Act 1987 that the DVLA use to pool fees together to allow for greater flexibility.35 Improving external reporting

The Treasury requires departments to disclose information on their fees and charges in their annual reports and accounts, as set out in MPM and the Financial Reporting Manual (FreM). However, the Treasury noted there are inconsistencies between these documents. This has created ambiguity about what departments must report and at what level of detail. The NAO found that disclosures vary significantly across charging bodies, for example, with some omitting key details such as cross-subsidies. We asked the Treasury what it is doing to improve oversight and strengthen disclosure requirements. The Treasury told us it plans to align MPM with the FReM and clarify expectations around departmental reporting.36

Poor reporting limits the Treasury and Parliament’s ability to monitor fees and hold departments to account. The NAO found that none of the seven services it examined complied fully with all of the Treasury’s disclosure requirements in their respective 2023-24 annual report and accounts.37 Accounting officers are responsible for ensuring fees are appropriately set and transparently reported, yet incomplete and inconsistent disclosures mean there is no clear picture of fee-setting across government. This weakens scrutiny and allows significant surpluses or deficits 32 Qq 11,28 33 Q 43 34 Letter from HM Treasury’s Permanent Secretary, 24 November 2025 35 Qq 11-15 36 Qq 28, 29; C&AG’s Report, Figure 13 37 C&AG’s Report, para 2.27 13 to build up before corrective action is taken. The Treasury told us that greater consistency and standardisation in reporting will help improve its understanding of departmental performance and better support accounting officers in fulfilling their responsibilities.38

The NAO reported the charged services it examined did not fully fulfil their disclosure requirements on areas such as unit costs, the cost-recovery targets, objectives, the extent and explanation for over or under-recovery.39 The lack of transparency affects public confidence and understanding of what they are paying for. The Treasury agree transparency is essential and that departments should clearly explain their fees, confirm it has appropriate consents, and document any changes made.40 We asked how this works in practice to ensure transparency for users that all the cost elements they are being charged for relate to the service. We noted that there is a higher risk, when fees over recover, to fund broader department priorities without disclosing this clearly to fee payers. The Treasury told us that such decisions must be made transparently, with departments clearly distinguishing between the cost of providing the core service and any supplementary policy-related charges approved by Parliament.41 Written evidence we received from Amnesty International UK and Migrant Voice also highlighted when services, such as visas, over-recover, unrelated costs should not be passed onto fee payers.42

The NAO report highlighted the importance of proportionate financial reporting requirements, particularly for smaller bodies.43 We asked how the Treasury will make sure its disclosure requirements are proportionate. The Treasury told us that it is mindful of the administrative burden, and it intends to do more to help departments improve transparency and ensure the public and Parliament have a clear understanding of how fees are set and what they cover.44 Incentivising efficiencies

Most services are designed to recover their costs, meaning any efficiencies achieved would be passed onto fee-payers rather than retained by the department. Conversely rising costs can simply be transferred to users without challenge.45 The NAO highlighted the challenges of digital 38 Q 29 39 C&AG’s Report, para 2.27 40 Qq 45, 68 41 Qq 36-40 42 GFC0001; GFC0002 43 C&AG’s Report, para 2.27 44 Qq 41, 45 45 Qq 70, 73 14 transformation which can require an upfront investment in time, money and skills. The risk of which is also borne by the charging body, and can lead to service disruption, especially if the programme is not handled well.46 This offers little incentive for departments to innovate, improve productivity or reduce operating costs. Of the seven services examined by the NAO, only one had reduced its fees in nominal terms over the past decade as a result of efficiency savings.47

Departments and arm’s-length bodies struggle to identify opportunities to improve efficiency and value for money as they do not maintain detailed cost information. The NAO found charging bodies use different methods to calculate costs including a range of cost models with varying levels of detail. As a result, some bodies do not understand how their processes contribute to costs. MPM does not set out the relative merits of different cost-modelling approaches nor does it establish clear expectations for identifying efficiencies within fee-setting regimes.48 This contributes to inconsistent approaches across government, making it difficult to understand the true costs of services and to develop robust business cases for modernising legacy systems. The MoJ told us that it completed a review of its costing methodology in 2020, where it moved from an absorption costing model to an activity-based approach. In doing this, it assessed the costs of activities associated with each fee to improve cost-attribution.49 The Treasury told us that the 2025 spending review was underpinned by efficiency, with targets to encourage cost reductions which productivity improvements will be critical to achieve. It said that its Efficiency Framework will improve departments’ consistency in reporting efficiency gains, and help it hold them to account.50 Following the evidence session, Treasury drew to our attention to the fact that the updated Efficiency Framework emphasises that, where technical efficiencies are achieved from reducing the costs of delivering a charged service, the savings can count towards the department’s efficiency target agreed with Treasury.51

We heard evidence that some organisations have demonstrated how efficiencies can be achieved. The DVLA told us it has held its fees at 2014 levels by absorbing inflation through digitisation and process redesign, while improving customer service.52 It operates under a 5% efficiency target during current spending review period and reinvests savings to strengthen services that are underperforming such as drivers’ medical assessments. 46 C&AG’s Report, para 3.16 47 C&AG’s Report, para 3.14 48 C&AG’s Report, para 2.9 49 Q 17 50 Q 74 51 Letter from HM Treasury’s Permanent Secretary, 24 November 2025; and The Government Efficiency Framework - GOV.UK, updated 24 November 2025 52 Q 14 15 The MoJ described its reform programme to modernise courts and tribunals by moving away from paper-based applications to digital services, to support progress towards full cost-recovery and improved user experience.53

The Treasury acknowledged that its system is largely reactive rather than strategic, relying on accounting officers’ general duty in respect of value for money, and periodic spending review targets to drive efficiency. It recognised the potential of emerging technologies, such as Artificial Intelligence, to reduce administrative costs and improve service delivery. The Treasury told us that departments are driven by both incentives and ongoing obligations to encourage them to adopt efficiency measures. Therefore, the Treasury stated that they intend to adopt a more proactive approach to embedding efficiency incentives across government.54 53 Qq 72-73 54 Qq 70, 74 16

Most departments lack a sufficient understanding of their service costs and departments need help from HM Treasury and the Government Finance Function on the practical steps they can take to improve and upskill. While standards for service costing and financial management exist, they lack the necessary sophistication and are applied inconsistently across departments. There is limited practical guidance and systematic support, with some progress in granular costing seen in local frontline services like schools and hospitals, which are easier to benchmark than unique central government services. Forums such as the Finance Foundations Group aim to share best practice. The Government Finance Function (GFF) is conducting a skills assessment and working to improve its understanding of cost drivers. It recognises the need for a significant shift, aligning with its new strategy that prioritises better use of data to enhance value for money. Departments are receptive to this push, especially given the efficiency targets set in the 2025 Spending Review. GFF acknowledges it does not have all the answers and is seeking to co-produce guidance with departments demonstrating good practice. To support this, GFF will work through the Finance Foundations Group to explore what can be done in more detail. recommendation HM Treasury and the Government Finance Function should set out concrete ways in which departments must start to identify and record service costs within six months. This should include setting out what needs to be improved and practical guidance on how to make improvements.

Legacy IT systems are a significant contributory factor in the cost of government services and an impediment to being able to gather better data to bring about improvements. Departments face major challenges in collecting and analysing cost data due to legacy IT systems and siloed data structures. These outdated systems are a significant cost driver, requiring additional people and processes to work around system limitations, and hinder consistent data gathering. The Cabinet Office recognises the need for Permanent Secretaries to understand their legacy estate, while DSIT has baselined government legacy systems and reviewed departmental bids for funding in the 2025 Spending Review. However, quick wins often mask deeper issues like poor data quality and entrenched cultural barriers. The lack of common data standards across government complicates benchmarking and granular cost analysis. The Shared Services strategy offers potential for improved consistency in the future, but technical solutions alone are insufficient–cultural and process reforms will be constantly needed. There is no standard policy on time recording in the civil service, and despite ERP systems offering 4 this capability, its use remains optional. The desired levels of productivity improvements will not be achieved without effective use of time for every civil servant as would be the norm in the private sector. A shift in mindset is needed to better understand how time is spent and to make use of data for meaningful insights. recommendation a. DSIT should provide the Committee with a baselined list of legacy systems identified and the services they support alongside the Treasury Minute response to this report. b. In addition, DSIT should,within six months from the publication of this report, indicate which legacy systems should be targeted as a priority for further investigation into how far their limitations result in additional people and process costs in the operational business areas they support

The lack of Single Service Owners with accountability for all aspects of an end-to-end service inhibits departments’ ability to identify the visibility of a service’s end-to-end cost and the incentive to reduce it. The absence of Single Service Owners (SSOs) with the right mandate and visibility prevents a full view of end-to-end service costs and weakens incentives to reduce them, as focus remains on individual components rather than the whole process. Achieving larger benefits requires deeper service understanding and, in some cases, re-engineering of those services. The SSO role is not well understood across departments compared to other senior roles, and more can be done to raise its profile. There is an opportunity to build on the existing community of Service Owners and the methodology from the Top 75 programme, which included industry benchmarks for segmented digital services. Permanent Secretaries should be responsible for appointing SSOs with appropriate skills and talent, though the Cabinet Office has not set a timeframe for this. recommendation a. The Cabinet Office should, within the next six months, require Permanent Secretaries to appoint Senior Single Service Owners for all remaining services identified by the Cabinet Office and the Government Digital Service which do not yet have one in place. b. The Cabinet Office should set out a deadline by which Permanent Secretaries must complete the identification and appointment of SSOs for their remaining services. 5

There is a lack of urgency and clear leadership for resolving the legacy systems and poor data issues that inhibit the realisation of benefits through greater productivity and efficiency that departments will reap from new technology such as AI. Government transformation and efficiency efforts increasingly rely on artificial intelligence (AI), but legacy systems remain a major barrier, limiting access to the data needed for effective implementation. Despite this, departments are already experimenting with AI. Resource constraints at the centre of government mean less support is available compared to previous initiatives like the Top 75 programme. Although the digital pay framework has been revalorised, it still falls short of industry rates in London and the South East, affecting recruitment and retention. Addressing data and legacy issues requires sustained effort and resilience. AI offers potential to connect disparate data sources, but progress must be focused and purposeful–trying to solve everything at once risks losing momentum. Prioritisation and clear milestones are key to avoiding drift and ensuring that artificial intelligence delivers meaningful value. recommendation As part of its response to this report, DSIT should set out how it will take the lead on systemic data and systems improvement across government in order to exploit new technologies such as AI. At the same time, the department should set out what further steps it will take to ensure it can both secure and retain board level CDIOs and senior specialists of the right calibre given it cannot match industry pay rates in all areas of the country. 6 1 Accountability, support and guidance Introduction

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Cabinet Office, HM Treasury and the Department for Science, Innovation and Technology on improving government’s productivity through better information on the costs of services.1

Responsibility for holding departments to account for improving their cost information is joint between the Cabinet Office and HM Treasury. The Cabinet Office sets the overall performance management framework expectations, including financial minimum standards.6 However, it does not systematically enforce compliance, relying instead on departments and internal auditors. HM Treasury’s role is to make sure departments and accounting officers have the guidance they require and, through the Government Finance Function, arrange and conduct end of year performance reviews.7

However, current obligations are focused on wider overall value for money and there are no specific objectives or accountability for Permanent Secretaries or senior leaders to collect detailed data on costs at the service level.8 Although the Cabinet Office and HM Treasury expect permanent secretaries to understand their cost drivers and how they evolve, the level of sophistication is often insufficient.9 Departments should be better incentivised to collect the information that is currently lacking. HM Treasury told us this could be done through clarifying accounting officers’ responsibilities for understanding their detailed costs and following this up through end of year financial assessments.10 The Treasury plans to clarify expectations for permanent secretaries in an upcoming “Dear Accounting Officer” letter.11 Providing central visibility of departments’ maturity levels would also help by shining a light on what others are doing across government.12 5 C&AG’s Report, para 1.4 6 Qq 84, 106 7 Q 84 8 Qq 105, 106 9 Qq 86, 89, 90, 94, 106 10 Q 107 11 Q 93 12 Q 110 8

The Cabinet Office told us that political sponsorship and support is considered essential as well as that of senior leaders within departments.13 This aligns with government’s goal of creating a more “productive and agile state”.14 Introducing targets for getting processes and systems in place to identify the costs of services would sharpen focus; while this would require a significant cultural shift, we were told that this would be “pushing at an open door”.15 Helping departments with the practical steps they can take

Some standards for service costing and financial management exist.16 However, we repeatedly heard that they lack the necessary sophistication and are applied inconsistently across departments.17 We heard examples of where costing activities were taking place at a more granular level, but these mostly related to front line health and education services delivered locally.18 Such services are replicated across many organisations and largely similar in nature. They are therefore intrinsically easier to benchmark for cost of delivery compared to services delivered once by a single central government department.19

We found that there is limited practical guidance and systematic support for people in departments who own the services and are responsible for identifying their costs.20 Forums such as the Finance Foundations Group aim to share best practice.21 While we heard a good description of the theory of sharing best practice, we were less convinced that the arrangements as described to us have led to tangible improvements, raising concerns that these forums may be little more than “talking shops” and not as effective as they ought to be.22

We were pleased to hear that the Government Finance Function (GFF) recognises the need for a significant shift.23 It told us that it has conducted an internal skills assessment and will recruit additional experts to help 13 Qq 147, 148 14 Qq 123, 146 15 Q 140 16 Q 85 17 Qq 86, 89, 90, 94, 106 18 Q 88 19 Qq 95, 96 20 Qq 91, 107 21 Q 91 22 Qq 92, 93 23 Q 139 9 upskill the finance function.24 This aligns with the GFF’s new strategy that prioritises better use of data to enhance value for money.25 GFF told us this upskilling will include working to improve the understanding of cost drivers and spending more time on this as an area of focus.26

GFF is seeking to co-produce guidance with departments demonstrating good practice.27 Both Cabinet Office and GFF said that departments are receptive to this push, especially given the efficiency targets they are expected to meet as set out in the 2025 Spending Review.28 To support this, GFF told us that it will work through the Finance Foundations Group to explore what can be done in more detail.29 24 Qq 126, 127, 128 25 Qq 93, 141 26 Qq 93, 139 27 Q 157 28 Qq 105, 110, 113, 141 29 Qq 98, 109, 158 10 2 Legacy systems, single service owners and overall leadership Addressing the barriers posed by legacy systems

Legacy systems are problematic for two main reasons. Firstly, they are a significant driver of cost, comprising around one-third of government’s technology estate but representing almost half of its costs.30 This may not include the excess costs that arise from people having to work manually around cumbersome, old systems and poor-quality data from fragmented data sources.31 Secondly, legacy systems are an impediment to being able to gather better cost data as data extraction often requires manual effort as repeated point-in-time exercises.32 The Cabinet Office recognises the need for Permanent Secretaries to have a good understanding of their legacy systems. The Department for Science, Innovation and Technology (DSIT) has baselined government legacy systems and reviewed departmental bids for funding in the 2025 Spending Review to mitigate the risks such systems pose. It told us that although there has been a step- change in how senior leaders are thinking about their legacy systems, there were not as many bids for funding as expected.33

“Quick wins” can be valuable. However, we are concerned that they often mask deeper and more persistent issues like poor data quality and entrenched cultural barriers. As the Cabinet Office has itself identified, these will need ongoing tenacity and effort if substantial progress is to be made in addressing them.34 30 Q 115 31 C&AG’s Report, para 4 32 Qq 139, 149 33 Qq 114, 115 34 Qq 111, 125, 150 11

The lack of common data standards across government further complicates benchmarking and granular cost analysis because it makes data more difficult to analyse and interpret.35 GFF told us that the introduction of new Enterprise Resource Planning systems and new data standards for back-office processes such as finance and human resources offer the potential for improved consistency.36 However, this will not necessarily address the costs of services provided by operational departments to citizens and businesses. Furthermore, technical solutions alone are insufficient–we heard that cultural and process reforms are also needed.37

Departments do not generally have a good view of the additional time and people costs associated with specific business processes or different stages of the customer journey.38 We were therefore surprised to learn that there is no standard policy in the civil service on how staff time is tracked, and despite many systems offering time recording capability, its use remains optional.39 A shift in mindset is needed to better understand how time is spent and to use the data collected for meaningful insights on where the costs of services are high and potential efficiencies and productivity improvements can be made.40 Appointing Single Service Owners

It is difficult for departments to gain a full view of the end-to-end costs of a service where there is no Single Service Owner (SSO) with overall mandate and responsibility for the service concerned.41 This also weakens the incentives to identify and reduce costs overall, because the focus is on the individual component parts of a service rather than how they fit together as an overall whole.42 While we heard “quick wins” can give a sense of progress, more substantial benefits require a deeper understanding of a service and in some case, re-engineering of the service.43 There is an opportunity to learn from the methodology used by the Top 75 programme, which included industry benchmarks for segmented digital services.44 35 Q 149 36 Q 140 37 Qq 140, 150 38 C&AG’s Report, paras 1.6, 1.7 39 Qq 135, 136 40 Qq 137, 138 41 Q 143 42 Q 144 43 Q 111 44 Qq 87, 108 12

The SSO role is not well understood across departments compared to other senior roles in departments. Both Cabinet Office and DSIT told us that more can and should be done to raise its profile and ensure that an SSO is appointed for “every single service”.45 It is important to ensure that SSOs have the appropriate authority as well as the right skills for the role. The Cabinet Office told us that it has already identified where an SSO is necessary, but ultimately Permanent Secretaries should be responsible for their appointment. The Cabinet Office does not yet have a timeframe for this but has committed to set one out in response to this report.46 Pace and leadership to enable benefits from new technologies

Government transformation and efficiency efforts are increasingly reliant on newer technologies such as artificial intelligence (AI).47 Legacy systems and poor-quality data remain a major barrier to reaping the full benefits.48 We heard that addressing data and legacy issues requires sustained effort and resilience and remain concerned that the pace of addressing the challenge is not keeping up with what is needed in today’s world and that despite this, departments are already experimenting with AI.49

Resource constraints at the centre of government mean that less support is available to departments compared to what was available under previous initiatives like the Top 75 programme.50 We have often observed on this committee that government pay rates cannot match what highly skilled people could earn in the private sector. Government has attempted to address this through the digital pay framework, which DSIT told us has recently been uplifted to market rates.51 However, we are concerned that it still falls short of industry rates in London and the South East, and this will affect the recruitment and retention of people with sufficient seniority and calibre to lead the transformation required.52

Progress must be focused and purposeful. We accept that trying to solve everything at once risks losing momentum, and that having a roadmap is helpful. Nevertheless, prioritisation and having clear milestones to aim for are key to avoiding drift in addressing government’s 45 Qq 132, 144 46 Q 133 47 Q 137 48 Q 115 49 Qq 115, 145, 153 50 Qq 122, 145 51 Q 128 52 Qq 131, 134 13 long-standing legacy and data issues, so that are in a better position to reap the full benefits of productivity-enhancing technologies such as artificial intelligence.53 53 Q 154 14