Accountability in small government bodies

A tailored financial reporting regime for small, low-risk bodies would allow for more meaningful reports and free up time for frontline delivery. Financial reporting requirements are disproportionately 2 onerous for smaller, low-risk bodies. The costs of producing and auditing lengthy, overly detailed annual reports and accounts often outweigh the associated accountability benefits. HM Treasury acknowledges that specific requirements, such as lease disclosures, could be simplified. However, it is underestimating the wider benefits that a more proportionate reporting regime for small bodies would deliver. These include improving transparency by making it easier to identify the most meaningful information in small bodies’ annual reports and accounts, and enabling public servants to devote more time to service delivery rather than compliance. Implementing a small body reporting regime will require a single, agreed definition of a small, low-risk body, as HM Treasury currently uses different thresholds for different purposes. recommendation HM Treasury should, by 30 June 2026, write to the Committee setting out its definition of a small body and its analysis of the costs and benefits of various options for streamlining the annual reporting requirements for small, low-risk central government bodies. This should include one or more ambitious options to significantly reduce small bodies’ reporting burden which must consider proportionality and a risk-based analysis. For these options, HM Treasury should: a. set out the accountability and transparency trade-offs of each option and potential mitigations; b. consider which options for simplifying and streamlining requirements might be applicable to larger organisations; and c. set out its proposed process for identifying which bodies are suitable for streamlined reporting requirements.

Government’s requirements for delivering specialist functions such as digital and procurement effectively are often ill-suited to small bodies. Government’s requirements for delivering specialist functions (functional standards) and their associated guidance can be useful to small bodies, but they are often designed with larger organisations in mind. For example, the guidance refers to roles such as complex HR casework specialists and trained fraud risk assessors. Small bodies do not typically have this expertise in-house. Under the “comply or explain” model, organisations may choose not to follow certain elements of the standards, provided they explain their reasons. In practice, however, the standards place more emphasis on “comply” than “explain”, and determining which requirements are relevant can be difficult and time-consuming for small bodies. 3 In response to feedback from small bodies, the Cabinet Office has asked all government functions to review their requirements and to issue guidance on how they can be applied proportionately. recommendation In its Treasury Minute response to this report the Cabinet Office should update the Committee on progress with the government functions work to make it easier for small bodies to apply the functional requirements proportionately.

Sponsor departments and the centre of government can do more to help small bodies apply requirements effectively and proportionately. Small bodies would benefit from greater support to help them comply with requirements. In large organisations, staff can specialise in specific areas and readily draw on the expertise of colleagues. By contrast, small bodies often rely on a few individuals who must cover a wide range of areas and may lack specialist skills to implement certain requirements. Sponsor departments, shared service providers and the centre of government have these skills and can offer valuable support, but are not always easy for small bodies to engage with. Clearer signposting of the support already available would help small bodies access it more effectively. recommendation The Cabinet Office and HM Treasury should set out their plans for improving small government bodies’ access to expertise and support from sponsor departments and the centre of government.

Relying on shared corporate services such as HR, estates and finance is not always the best option for small bodies. Shared corporate services, such as estates and IT, have the potential to deliver efficiencies and free up resources in small bodies to focus on frontline delivery. Under the government’s shared services strategy, organisations across the civil service are expected to migrate to shared service centres that will provide HR, payroll and other back-office functions. Small arm’s-length bodies fall within the scope of this strategy. There is the opportunity to build compliance with government requirements into the way shared services are provided. However, the shared services model does not always suit small organisations. In some cases, they can deliver back-office functions more efficiently through small, agile in-house teams. 4 recommendation The Cabinet Office should explain how it intends to engage with small central government bodies to ensure that they are only onboarded to shared corporate services if this is beneficial to them as well as to government as a whole. If they choose not to adopt the shared service model, they must clearly justify this decision. recommendation The Cabinet Office should update its guidance on commissioning and establishing new public bodies to require departments to assess what level of reporting and governance is proportionate for the proposed body. Where a more streamlined approach is appropriate, departments should set out in the business case: • how the body will draw on sponsor department expertise and support; • whether a low-risk financial reporting regime is suitable; and • when the body will determine its shared services model. 5 1 Consolidating small bodies

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Cabinet Office and HM Treasury on accountability in small government bodies.1 We also took evidence from the Government’s Actuary Department, the Office of the Children’s Commissioner and the Ministry of Justice.

Since launching the ongoing public bodies review, government’s efforts have focused on consolidating larger bodies. However, there are also significant benefits in consolidating smaller bodies where appropriate, beyond the potential to achieve efficiency savings and economies of scale. The Government Actuary’s Department and the Office of the Children’s Commissioner have told us that they struggle to develop internal expertise, ensure resilience, and that the standards that they are required to comply with are often ill-suited to small organisations.7

While successive governments have consolidated some public bodies, they have also set up new bodies, including small ones. When our predecessor Public Accounts Committee reported on arm’s-length bodies in 2021, it found that, despite the guidance that creating a new arm’s-length body should be a “last resort”, government often did not rigorously consider the alternatives to setting up a new arm’s-length body.8

The Ministry of Justice and the Office of the Children’s Commissioner told us that, there can be a sound rationale for having separate small bodies, such as when legislation requires an office holder to be independent.9 But the opposite is also true. All Government Departments should think carefully about the principles embodied in their report before providing draft legislation setting up new large and small bodies. The government has stated that the reorganisation of public bodies will not affect bodies whose independence from ministerial decision-making is essential, such as those which scrutinise government or protect the rule of law.10 6 Cabinet Office, Hundreds of quangos to be examined for potential closure as Government takes back control, 7 April 2025 7 Qq 3, 6 and 10; C&AG’s Report, paras 13, 14 and 23 8 Committee of Public Accounts, Government’s delivery through arm’s-length bodies, Eighteenth Report of Session 2021–22, HC 181, 24 September 2021 9 Qq 13, 15 and 71 10 Cabinet Office, Hundreds of quangos to be examined for potential closure as Government takes back control, 7 April 2025 7 2 Simplifying requirements for small bodies Financial reporting requirements

There is no single, commonly agreed definition of a small, low-risk central government body. The NAO report classified central government or parliamentary bodies that spent up to £30 million in 2022–23 or had up to 50 full-time equivalent (FTE) employees on 31 March 2023 as small.11 HM Treasury has not endorsed this definition of small bodies and uses different definitions for different purposes. For example, it excluded government bodies with expenditure, income, assets and liabilities of less than £30 million from the Whole of Government Accounts 2023–24.12 It exempted arm’s-length bodies with up to 500 employees or total operating income and funding received up to £500 million from including Task Force on Climate-related Financial Disclosure (TCFD)-aligned disclosures in their annual reports and accounts.13 HM Treasury told us that, in principle, it would be preferable to identify which small bodies might be suited for simplified requirements based on their level of risk, although it noted that determining this may be complex and subjective.14

Small central government bodies are largely subject to the same financial reporting and external audit requirements as large bodies. This is unlike small companies and charities in the UK, and small central government bodies in countries such as New Zealand and Portugal, which benefit from exemptions and simplified requirements.15 The Office of the Children’s Commissioner told us that it undergoes more detailed audit testing than an academy trust with an expenditure level 20 times higher.16 11 C&AG’s Report, para 9 12 HM Treasury, Whole of Government Accounts: Year ended 31 March 2024, HC 917, 17 July 2025, p. 155 13 HM Treasury, Task Force on Climate-related Financial Disclosure (TCFD)-aligned disclosure application guidance, updated 17 July 2025 14 Q 58 15 Q 47; C&AG’s Report, paras 19–20 16 Qq 3 and 23–24 8

The Government’s Actuary’s Department and the Office of the Children’s Commissioner told us that the preparation and audit of their ARAs can be timeconsuming.17 This limits their ability to pursue other valuable work and brings limited benefits.18 The Electoral Commission told us in a written submission that compliance with requirements creates a significant workload and can invite a “tick-box” approach designed solely to meet audit expectations, rather than deliver meaningful outcomes.19 Submissions by academics and by the Institute of Chartered Accountants in England and Wales noted that the requirements are clearly disproportionate for some smaller public bodies and that there is a strong case for a more proportionate, less onerous reporting framework for small bodies.20

HM Treasury told us that it is considering opportunities for simplifying disclosures in annual report and accounts, but that it would want to consider the risks and benefits of a streamlined reporting regime for small central government bodies.21 HM Treasury also told us that savings arising from a small body reporting regime would be modest, and that they would have to be balanced against the loss in transparency arising from less detailed reporting.22 In our view, if properly implemented, a streamlined small body reporting regime would deliver significant additional benefits. It would free civil servants’ time to deliver their day-to-day job more efficiently.23 It would enhance accountability and transparency, because removing unnecessary information from annual reports and accounts makes it easier for Parliament and the public to focus on what is important.24 In a written submission, academics noted that it could also reduce the cost to Parliament of funding the financial audit of small bodies.25 Requirements for specialist functions

Some aspects of the functional standards, their supporting guidance and self-assessments are better suited to large organisations which have experts in a range of specialist areas than to small organisations which operate in a more agile way.26 For instance, the Government Actuary’s Department told us that the security standard, which sets expectations 17 Qq 10 and 47 18 C&AG’s Report, para 23 19 Dr Henry Midgley, Professor Laurence Ferry and Honorary Professor Aileen Murphie (SGB0002); Electoral Commission (SGB0005) 20 The Institute of Chartered Accountants in England and Wales (SGB0004) 21 Qq 57, 62, 70 and 82 22 Qq 57 and 65 23 Q 76 24 Qq 83 and 92 25 Dr Henry Midgley, Professor Laurence Ferry and Honorary Professor Aileen Murphie (SGB0002) 26 C&AG’s Report, para 1.14; Q 6 9 for protecting the government’s assets, visitors to government property, third party suppliers whilst engaged on government business, and citizen data, assumes that organisations operate in a very complex system.27 A submission from the Local Government Boundary Commission for England stated that the complexity and technical language of some standards, along with the lack of guidance tailored to small organisations, increased the challenge of complying with the standards.28

The functional standards include advisory elements. Organisations can choose to either comply with them or explain why they have not complied with them.29 The Ministry of Justice told us that this approach is probably more weighted towards “comply” than “explain”.30 It noted that more openness on when certain types of organisations do not need to follow specific standards would be helpful, for instance through examples or frameworks for decision-making.31 A submission from the Electoral Commission stated that the “comply or explain” approach does not always allow for flexibility or relevance, and proposed that smaller organisations be provided with more discretion to assess which requirements are relevant to them and to prioritise meeting those requirements.32

The Cabinet Office told us that, in the light of feedback from government bodies, it has asked the government functions to provide more guidance on how to apply the standards proportionately.33 The functions are currently revising standards and guidance in the light of Project Reset, which plans to transfer more responsibility for enforcing spending controls from the functions to departments. The Cabinet Office told us that these revisions will consider the perspective of small organisations.34 27 Q 7 28 Local Government Boundary Commission for England (SGB0003) 29 C&AG’s Report, para. 13 30 Q 30 31 Q 30 32 Electoral Commission (SGB0005) 33 Q 67 34 Q 90 10 3 Support for small bodies Support from sponsor departments and the centre of government

Some of the functions’ self-assessments and guidance require specialist expertise that small bodies often lack. For instance, the criteria for a ‘good’ level of compliance with the HR standard include escalation to complex casework specialists.35 Small bodies often rely on their sponsor department to access this expertise.36 The Ministry of Justice told us that it tailors the support it provides to each of its sponsored bodies based on their operations, budget and risks.37

Small bodies rely on support from the Cabinet Office, HM Treasury, and other central government bodies to comply with requirements. It can be hard for small bodies to access this support.38 For instance, the Government Property Agency provides data that the small bodies leasing its office space use to report their performance against the required government sustainability targets. The Government Actuary’s Department told us that the Government Property Agency has at times been difficult to engage with, and that it has had to invest considerable time to bring that relationship to the level it would like.39

Small bodies are not always aware of the support and resources provided by sponsor departments and the centre of government. The Director of Finance and Operations of the Government Actuary’s Department told us that she is only aware of many forums and groups because she has worked in the civil service for many years.40 Small bodies told the National Audit Office that they would benefit from better signposting of existing resources.41 35 C&AG’s Report, para 1.14 36 Q 11 37 Q 19 38 Q 12; C&AG’s Report, paras 1.15 and 2.18 39 Qq 10, 12 and 45 40 Qq 43 and 45 41 C&AG’s Report, para 23 11 Shared corporate services

Small government bodies often rely on shared corporate services, which are provided by their sponsor department or other organisations. For example, HM Treasury provides IT services and the Government Property Agency provides estates services to the Government Actuary’s Department.42 The Office of the Children’s Commissioner uses the Department for Education’s accounting package and IT services.43 The Ministry of Justice provides transactional finance, HR and commercial activity to the Independent Monitoring Authority, Judicial Appointments Commission, Parole Board and Youth Justice Board.44

Under the government’s shared services strategy, departments are moving HR, payroll and other back-office functions to shared service centres. Arm’s-length bodies are expected to join their sponsor department’s shared service centres.45

The Cabinet Office told us that greater adoption of shared services across government, including by small bodies, can deliver significant savings.46 The Cabinet Office, HM Treasury and Ministry of Justice stated that, for small bodies, relying on shared corporate services is more efficient than maintaining specialist capabilities in-house. Shared services can deliver economies of scale and allow for greater sharing of learning between organisations.47 There is also an opportunity for functions to work with shared service clusters to build compliance with the functional standards into the way shared services will be provided.48

Small bodies told us that shared corporate services do not always suit them. The Office of the Children’s Commissioner told us that delivering back-office functions, such as payroll, in-house allows it to operate more flexibly, at very low cost, and with fewer processes than by using shared services.49 A submission by the Pubs Code Adjudicator stated that reliance on its parent department’s HR support can exacerbate its challenges in recruiting staff with the right skills and experience in a timely way.50 The Government Actuary’s Department explained that it procured its own accounting system rather than adopting its sponsor department’s accounting system, which 42 Qq 3 and 16 43 Qq 9, 11 and 37 44 Letter from the Ministry of Justice, 4 February 2026 45 Cabinet Office, Guidance on the undertaking of Reviews of Public Bodies, updated 25 April 2024, para. 63 46 Q 76 47 Qq 4, 15, 71 and 76 48 C&AG’s Report, para 1.17 49 Qq 13 and 35 50 Pubs Code Adjudicator (SGB0007) 12 lacked the timesheet functionality it requires. Procuring its own system was cheaper than adding this functionality to the sponsor department’s system.51 51 Qq 40–42 13