Recommendations & Conclusions
5 items
2
Recommendation
57th Report - Government services: Gene…
Rejected
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 …
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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.
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Government response AI summary
The government disagrees with the recommendation, rejecting an annual review cycle and targeted deep-dives. Instead, it will update the Financial Reporting Manual (FReM) with clearer guidance and embed oversight through bi-annual Spending Review returns.
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HM Treasury
5
Recommendation
57th Report - Government services: Gene…
Rejected
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 …
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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
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Government response AI summary
The government rejects the recommendation, stating its existing Government Efficiency Framework and Spending Review targets already provide adequate incentives for departments to drive efficiencies in fee-funded services and track performance.
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HM Treasury
22
Recommendation
57th Report - Government services: Gene…
Rejected
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 …
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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
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Government response AI summary
The government disagrees with the recommendation but states that the Government Efficiency Framework (GEF) already provides extensive guidance for efficiency in the fee-setting framework. They state that departments are incentivised to drive efficiencies in their fee-funded services as this will count towards their bespoke technical …
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HM Treasury
23
Recommendation
57th Report - Government services: Gene…
Rejected
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 …
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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
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Government response AI summary
The government disagrees with the recommendation but states that the Government Efficiency Framework (GEF) already provides extensive guidance for efficiency in the fee-setting framework. They state that departments are incentivised to drive efficiencies in their fee-funded services as this will count towards their bespoke technical …
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HM Treasury
24
Conclusion
57th Report - Government services: Gene…
Rejected
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 …
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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
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Government response AI summary
The government disagrees with the recommendation but states that the Government Efficiency Framework (GEF) already provides guidance for efficiency and that departments are incentivized to drive efficiencies in their fee-funded services, which will count towards their technical efficiency targets.
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HM Treasury