Recommendations & Conclusions
21 items
2
Recommendation
2nd Report - NAO financial audit insigh…
Accepted
Qualified accounts are a persistent feature of government’s financial reporting and may indicate underlying weaknesses in the financial controls of some bodies. There were 14 government bodies with qualified accounts in 2024–25. Moreover, there are bodies such as the Department of Work & Pensions and HM Revenue and Customs where …
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Qualified accounts are a persistent feature of government’s financial reporting and may indicate underlying weaknesses in the financial controls of some bodies. There were 14 government bodies with qualified accounts in 2024–25. Moreover, there are bodies such as the Department of Work & Pensions and HM Revenue and Customs where ongoing qualifications due to material levels of fraud and error have persisted for 36 and 20 years respectively. We are not at all persuaded that such high levels of fraud and error can or should be regarded as inherent features of these organisations’ systems. Excluding the state pension, overpayments due to fraud and error in the most recent DWP accounts were £9.3 billion or 6.2% which is why these accounts have been qualified for 36 years. This enormous figure has been accepted for far too long and action led by the Treasury should be taken to reduce it. The recent positive example of the 3 Environment Agency shows that, with sustained commitment of time and resources, it is entirely possible to move from repeatedly qualified accounts to a clean audit opinion. The Agency reports numerous additional benefits from improving the financial management of its assets, such as being able to better estimate levels of needed capital investment and forecasting risk of failure. recommendation HM Treasury and the Government Finance Function should increase support for departments or organisations with qualified accounts. It should write to the Committee in a year’s time evaluating the success of these actions.
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Government response AI summary
The government agreed to increase support for departments with qualified accounts through updated guidance, training, technical support, and forums. It committed to writing to all qualified bodies regarding their 2025-26 accounts and providing an update to the Committee by November 2027.
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HM Treasury
3
Recommendation
2nd Report - NAO financial audit insigh…
Accepted
We are concerned that the 17 departmental groups had to write off close to £7 billion in total during 2024–25 for spending that did not achieve intended objectives. In addition to writing off £6.6 billion during 2024–25, the 17 departmental groups also made special payments outside their normal activities that …
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We are concerned that the 17 departmental groups had to write off close to £7 billion in total during 2024–25 for spending that did not achieve intended objectives. In addition to writing off £6.6 billion during 2024–25, the 17 departmental groups also made special payments outside their normal activities that totalled over £293 million. It is possible some of this expenditure may have been in the public interest, however it may also indicate where bodies did not exercise proper control or oversight on spending. We particularly consider losses incurred from cancelling projects after large sums have already been invested to be very poor value for money. recommendation HM Treasury should analyse the root causes of recent large reported losses, to identify what lessons can be learned and avoid such wasted funds in future investment decisions, and report back to the Committee by the end of the year.
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Government response AI summary
The government accepted the recommendation to analyse the root causes of recent large reported losses across government to identify lessons for future investment decisions. The Treasury committed to leading this analysis and reporting back to the Committee by the end of 2026.
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HM Treasury
4
Recommendation
2nd Report - NAO financial audit insigh…
Accepted
Government bodies too often lack the necessary financial management skills to support digital transformation effectively. There are potentially huge gains to be had in government from successfully leveraging new technologies and digital opportunities, in terms of both better services for citizens and savings or efficiencies for the public purse. However, …
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Government bodies too often lack the necessary financial management skills to support digital transformation effectively. There are potentially huge gains to be had in government from successfully leveraging new technologies and digital opportunities, in terms of both better services for citizens and savings or efficiencies for the public purse. However, while business as usual IT change is generally reasonably managed by government, it frequently finds applying appropriate skills, financial controls and governance to major IT change or digital transformation projects more challenging. Managing such changes poorly can lead to serious and ongoing impacts for the running of an organisation. In its digital transformation programme for its settlement system, the Bank of England managed costs carefully: it delivered the programme largely on time and at an estimated cost of £431mn, and avoided costs creeping up in an unplanned way. Whereas in contrast, total costs of National Savings 4 and Investment (NS&I) transformation programme, including running costs, were estimated in 2024 at £3.0 billion, an increase of £1.3 billion from 2020, with further increases likely. recommendation The Government Finance Function should set out how it will ensure government finance teams have the necessary skills to apply appropriate financial controls and governance to digital transformation projects.
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Government response AI summary
The government agreed to the recommendation, outlining plans to include a dedicated financial management module in the Major Projects Leadership Academy by March/April 2027 and continuing efforts to strengthen finance capability through recruitment and risk management activities.
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HM Treasury
5
Recommendation
2nd Report - NAO financial audit insigh…
Accepted in Part
The money that government estimates it owes under various compensation schemes has risen in recent years, reaching £73.4 billion by the end of 2024–25, an £11.8 billion increase on the previous year. Annual payments from the government’s current largest ongoing compensation schemes nearly doubled from £2.5 billion at the end …
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The money that government estimates it owes under various compensation schemes has risen in recent years, reaching £73.4 billion by the end of 2024–25, an £11.8 billion increase on the previous year. Annual payments from the government’s current largest ongoing compensation schemes nearly doubled from £2.5 billion at the end of 2023–24 to £4.9 billion at the end of 2024–25, and the total lifetime impact of these schemes is estimated at over £102 billion. A considerable portion of this impact relates to clinical negligence, which the Department of Health & Social Care intends to address through the upcoming NHS Ten Year Plan. We do not question the validity of payments received by individuals through the government’s various compensation schemes, however it is not clear whether value for money has been properly considered in the schemes’ design and administration. recommendation HM Treasury should undertake an international comparison of compensation schemes, to identify learning or best practice that could be applied from other countries’ approaches to how schemes are designed, funded and administered, and report back to the Committee by the end of the year. This should include benchmarking how much other countries’ compensations schemes cost as a percentage of GDP. 5 1 The annual reports and accounts of government Introduction
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Government response AI summary
The government agreed to undertake an international review of compensation schemes focusing on design, funding, and delivery features. However, it explicitly stated that strict benchmarking of costs as a percentage of GDP would risk misleading conclusions, opting instead for appropriate comparisons of schemes' scope and …
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HM Treasury
1
Conclusion
2nd Report - NAO financial audit insigh…
Not Addressed
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (HMT), the Government Finance Function (GFF) and the Environment Agency (the Agency).1
Government response AI summary
The government stated it agrees with the committee's introductory conclusion, then provided a detailed response outlining actions to improve financial reporting quality and timely account laying across central government, including guidance, training, and a commitment to update the Committee by November 2026.
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HM Treasury
6
Conclusion
2nd Report - NAO financial audit insigh…
There has been gradual improvement to reporting timescales since 2019–20, with nearly two-thirds of government bodies publishing their 2024–25 accounts by summer recess in 2025.12 The NAO report notes recent improvements were built on the provision of high-quality draft accounts and supporting evidence, demonstrating the value of senior management prioritising …
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There has been gradual improvement to reporting timescales since 2019–20, with nearly two-thirds of government bodies publishing their 2024–25 accounts by summer recess in 2025.12 The NAO report notes recent improvements were built on the provision of high-quality draft accounts and supporting evidence, demonstrating the value of senior management prioritising timely publication of ARAs.13
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HM Treasury
7
Conclusion
2nd Report - NAO financial audit insigh…
HMT told us that government bodies are legislatively required to publish their accounts by 31 January. While the vast majority meet this requirement, it aims for better than this by asking that accounts are published by summer recess. Eight of the larger government departments published after summer recess for 2024–25, …
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HMT told us that government bodies are legislatively required to publish their accounts by 31 January. While the vast majority meet this requirement, it aims for better than this by asking that accounts are published by summer recess. Eight of the larger government departments published after summer recess for 2024–25, of which four were said to have 7 C&AG’s Report, paras 1.2 and 1.4 8 C&AG’s Report, para 1.7 9 C&AG’s Report, para 1.8 10 Q 15; C&AG’s Report, para 1.9 11 C&AG’s Report, para 1.9 12 C&AG’s Report, para 1.8 13 C&AG’s Report, para 1.11 7 credible plans to move to pre-summer recess publication for 2025–26.14 HMT expects 70% of 2025–26 accounts to be published before summer recess in 2026.15
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HM Treasury
8
Conclusion
2nd Report - NAO financial audit insigh…
HMT agreed there are considerable benefits to reporting by summer because this frees up finance teams to focus on more value-added and forward-looking activities in the autumn.16 HMT and the GFF told us they provide support for the annual accounts process, and particularly for those that routinely submit their accounts …
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HMT agreed there are considerable benefits to reporting by summer because this frees up finance teams to focus on more value-added and forward-looking activities in the autumn.16 HMT and the GFF told us they provide support for the annual accounts process, and particularly for those that routinely submit their accounts late, in several ways. For example, HMT seeks to share learning through various finance groups or communities of practice, and by publishing good practice guides on specific issues or initiatives such as when new accounting standards are introduced.17 It also works closely with cross-government functions, such as Government Internal Audit Agency and UK Government Investments, to strengthen understanding of financial controls or provide technical assistance around complex accounting issues.18 HMT sought to reassure us there were real personal and professional consequences for the accounting officers of organisations that submitted their accounts late. However, it did not provide a convincing response when we asked for previous examples of this.19 Qualified annual reports and accounts
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HM Treasury
9
Conclusion
2nd Report - NAO financial audit insigh…
The C&AG qualifies his audit opinion when material issues are identified in a body’s accounts that it cannot correct.20 The C&AG issued 17 qualified audit opinions across the accounts of 14 different government bodies for 2024–25.21 The most common reasons for qualifications were lack of sufficient audit evidence (six qualifications) …
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The C&AG qualifies his audit opinion when material issues are identified in a body’s accounts that it cannot correct.20 The C&AG issued 17 qualified audit opinions across the accounts of 14 different government bodies for 2024–25.21 The most common reasons for qualifications were lack of sufficient audit evidence (six qualifications) and material levels of fraud and error being detected (also six qualifications).22 Moreover, there are some government departments such as the Department for Work and Pensions (DWP) and HM Revenue and Customs (HMRC) where ongoing qualifications due to fraud and error have persisted for the last 36 and 20 years, respectively.23 We think this embedded culture is unacceptable and suggest that the HM Treasury begins discussions as to how these accounts can be regularised within a reasonable timescale. 14 Q 3 15 Q 19 16 Qq 8, 9 and 14; C&AG’s report, para 1.11 17 Qq 16-17 18 Q 16 19 Q 7 20 C&AG’s report, para 1.15 21 C&AG’s report, para 1.17 22 C&AG’s report 1.17 23 Qq 15, 22 and 23 8
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HM Treasury
10
Conclusion
2nd Report - NAO financial audit insigh…
We asked witnesses what they were doing to help organisations that regularly have their accounts qualified. The GFF noted that working with the finance community across government to remove qualifications is one of its key priorities and highlighted ongoing efforts around training and facilitating networking and sharing of best practice …
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We asked witnesses what they were doing to help organisations that regularly have their accounts qualified. The GFF noted that working with the finance community across government to remove qualifications is one of its key priorities and highlighted ongoing efforts around training and facilitating networking and sharing of best practice to support this.24 It also undertakes end-of-year finance assessments with departments that evaluate against good practice in areas such as business case quality and financial forecasting, and aims to ensure suitably qualified staff are recruited into key roles in government.25 HMT highlighted how dedicating significantly more resources towards compliance had helped to reduce fraud and error at HMRC by £850 million since 2021. However, HMT also suggested that fraud and error were almost inherent to the systems of organisations such as DWP and HMRC due to the nature of their activities.26 This should not be the automatic expectation of these departments.
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HM Treasury
11
Conclusion
2nd Report - NAO financial audit insigh…
Over the period 2019–20 to 2023–24, the Environment Agency’s annual accounts were qualified five times in succession because it could not accurately account for its flood management assets.27 However, the agency recently received a clean audit opinion for its 2024–25 accounts, its first since 2018–19, and we asked it about …
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Over the period 2019–20 to 2023–24, the Environment Agency’s annual accounts were qualified five times in succession because it could not accurately account for its flood management assets.27 However, the agency recently received a clean audit opinion for its 2024–25 accounts, its first since 2018–19, and we asked it about the steps taken to achieve this.28 It told us this improvement was only possible due to significant and sustained commitment of time, effort and resources by the agency over a number of years. It worked closely with the NAO and the GFF and took actions in several key areas, which included establishing a database of 10 million data points on the size and condition of all 255,700 of its flood assets, investing in IT systems, and changing the culture and outlook of frontline teams.29
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HM Treasury
12
Conclusion
2nd Report - NAO financial audit insigh…
The agency told us there have been considerable additional benefits from improving management of its flood asset base. For example, it can now group assets together to better understand how they interact with each other, and more accurately forecast levels of spending needed for maintenance or the risk of failure.30 …
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The agency told us there have been considerable additional benefits from improving management of its flood asset base. For example, it can now group assets together to better understand how they interact with each other, and more accurately forecast levels of spending needed for maintenance or the risk of failure.30 Losses and special payments
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HM Treasury
13
Conclusion
2nd Report - NAO financial audit insigh…
The 17 main departmental groups reported more than 2.7 million losses in 2024–25 amounting to £6.6 billion in total. The most significant reported losses related to cancelling or retiring assets, write-offs and debts no longer 24 Q 22 25 Q 22 26 Q 23 27 C&AG’s report, para 3.28 28 …
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The 17 main departmental groups reported more than 2.7 million losses in 2024–25 amounting to £6.6 billion in total. The most significant reported losses related to cancelling or retiring assets, write-offs and debts no longer 24 Q 22 25 Q 22 26 Q 23 27 C&AG’s report, para 3.28 28 Q 18 29 Q 18 30 Q 18 9 being pursued, and fraud. In addition, these departments made special payments of £293.5 million for non-standard transactions outside of allowed activities in 2024–25.31 Special payments can be made for many reasons, such as for adverse legal costs, compensation, or goodwill gestures related to personal injury or damaged property.32
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HM Treasury
14
Conclusion
2nd Report - NAO financial audit insigh…
The Ministry of Defence incurred a £1.6 billion loss in 2024–25 simply through cancelling projects.33 We challenged witnesses on whether it was acceptable that some bodies incur such huge public losses by halting projects after large sums have already been spent.34 HMT informed us the reason for the Ministry of …
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The Ministry of Defence incurred a £1.6 billion loss in 2024–25 simply through cancelling projects.33 We challenged witnesses on whether it was acceptable that some bodies incur such huge public losses by halting projects after large sums have already been spent.34 HMT informed us the reason for the Ministry of Defence not proceeding with its projects was largely due to a change in government policy.35 Similarly, losses of £290 million in the Home Office related to cancelling the Migration and Economic Development Partnership Agreement with Rwanda, and £472 million in the Department for Transport relating to the cancellation of eight road schemes, were also attributed to shifts in government priorities.36 As we have stated earlier in this report, this is a particularly egregious example of poor value for money for the taxpayer and the main Departments responsible should be informed by the Treasury that they expect considerable improvements in the future.
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HM Treasury
15
Conclusion
2nd Report - NAO financial audit insigh…
Despite these large amounts, HMT noted that special payments and losses are areas of much greater transparency in the public sector compared to the private sector, due to more stringent reporting requirements. In contrast, private businesses only declare losses and special payments if the amounts involved are considered material to …
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Despite these large amounts, HMT noted that special payments and losses are areas of much greater transparency in the public sector compared to the private sector, due to more stringent reporting requirements. In contrast, private businesses only declare losses and special payments if the amounts involved are considered material to their accounts.37 31 C&AG’s report, paras 2.5 and 2.8 32 C&AG’s report, para 2.10 33 Q 32 34 Q 32 35 Q 28 36 Qq 28 and 32; C&AG’s report para 2.9 37 Q 28 10 2 Key risks and challenges IT change and digital transformation in government
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HM Treasury
16
Conclusion
2nd Report - NAO financial audit insigh…
IT and digital infrastructure are integral to all government organisations. The government has set out a long-term vision for digital public services, which aims for a fundamental shift in how it uses new technology.38 There are potentially huge gains that could be made from digital transformation in government, in terms …
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IT and digital infrastructure are integral to all government organisations. The government has set out a long-term vision for digital public services, which aims for a fundamental shift in how it uses new technology.38 There are potentially huge gains that could be made from digital transformation in government, in terms of both better services for citizens and savings and efficiencies for the public purse.39 For example, HMRC estimates that digitisation of outbound communications and customer contact details will save £50 million a year from 2028–29 onwards through reduced paper use.40
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HM Treasury
17
Conclusion
2nd Report - NAO financial audit insigh…
However, while government generally manages business-as-usual IT changes and processes reasonably well, it often finds major IT change or digital transformation more challenging, which can lead to serious and ongoing impacts for the running of an organisation.41 The NAO’s recent audits and our own inquiries into major IT change programmes …
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However, while government generally manages business-as-usual IT changes and processes reasonably well, it often finds major IT change or digital transformation more challenging, which can lead to serious and ongoing impacts for the running of an organisation.41 The NAO’s recent audits and our own inquiries into major IT change programmes across government indicate frequent weaknesses in governance and capabilities, skills, decision-making, and learning lessons.42
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HM Treasury
18
Conclusion
2nd Report - NAO financial audit insigh…
We asked witnesses what they were doing to ensure that government’s investment in digital transformation programmes delivers its intended benefits. HMT accepted it was crucial for government to get better at leveraging AI and digital transformation. It highlighted there is a role for itself, the Department for Science, Innovation and …
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We asked witnesses what they were doing to ensure that government’s investment in digital transformation programmes delivers its intended benefits. HMT accepted it was crucial for government to get better at leveraging AI and digital transformation. It highlighted there is a role for itself, the Department for Science, Innovation and Technology and digital functions within Cabinet Office to work together to drive up best practice and performance.43
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HM Treasury
19
Conclusion
2nd Report - NAO financial audit insigh…
The GFF told us it is specifically increasing efforts around digital, data and change management skills to support government’s digital transformation aims. It also highlighted work by the National Infrastructure and Service 38 C&AG’s report, para 3.13 39 C&AG’s report, para 3.15 40 C&AG’s report, para 3.15 41 C&AG’s report, …
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The GFF told us it is specifically increasing efforts around digital, data and change management skills to support government’s digital transformation aims. It also highlighted work by the National Infrastructure and Service 38 C&AG’s report, para 3.13 39 C&AG’s report, para 3.15 40 C&AG’s report, para 3.15 41 C&AG’s report, para 3.20 42 C&AG’s report, para 3.19 43 Q 35 11 Transformation Authority to share best practice on major programmes, and reviews of controls in major programmes that are periodically undertaken by the Government Internal Audit Agency.44 Government compensation schemes
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HM Treasury
20
Conclusion
2nd Report - NAO financial audit insigh…
The largest ongoing compensation schemes currently administered by government have paid over £29 billion since 2005 and annual payments from these schemes doubled from £2.5 billion in 2023–24 to £4.9 billion in 2024–25.45 Future liabilities from these schemes were £73.4 billion at the end of 2024–25, with clinical negligence accounting …
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The largest ongoing compensation schemes currently administered by government have paid over £29 billion since 2005 and annual payments from these schemes doubled from £2.5 billion in 2023–24 to £4.9 billion in 2024–25.45 Future liabilities from these schemes were £73.4 billion at the end of 2024–25, with clinical negligence accounting for 82% (£60 billion) of this amount. In addition, the total lifetime financial impact of these schemes—in terms of compensation paid to date and future liabilities combined—is estimated to be £102.8 billion (as of October 2025).46
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HM Treasury
21
Conclusion
2nd Report - NAO financial audit insigh…
HMT acknowledged that clinical negligence had a significant impact on overall levels of compensation in terms of the high amounts paid each year, but noted there would inevitably always be clinical negligence in the health system.47 HMT informed us that clinical negligence will be reviewed by the Department of Health …
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HMT acknowledged that clinical negligence had a significant impact on overall levels of compensation in terms of the high amounts paid each year, but noted there would inevitably always be clinical negligence in the health system.47 HMT informed us that clinical negligence will be reviewed by the Department of Health and Social Care as part of the upcoming Ten Year Plan for the NHS and progress had already been made on some aspects, such as on the large numbers of low-value claims where legal fees exceed payments.48 More widely, HMT noted that recent large percentage increases over the previous year in compensation amounts paid and owed by government were largely due to the start of two new schemes, for infected blood and Post Office compensation.49 HMT agreed there could be value in looking at how much the UK pays in compensation as a proportion of GDP compared to other countries.50 44 Q 35 45 C&AG’s report, paras 3.4-3.5 46 C&AG’s report, para 3.6 47 Qq 33-34 48 Qq 33-34 49 Q 33 50 Q 33 12
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HM Treasury