Source · Select Committees · Public Accounts Committee
Recommendation 2
2
Accepted
Require HM Treasury and GFF to provide departments with practical guidance for identifying and recording service costs.
Recommendation
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.
Government Response Summary
The government agrees with the recommendation and will produce new costing guidance with departments to set a consistent standard for identifying and recording service costs. This includes defining scope, data sets, benchmarking, and integrating risk, supported by new systems and capability development, with departments piloting the standard.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. costing guidance, produced with departments and informed by NAO advice. The guidance will sit alongside Managing Public Money and Value for Money and provide a common, proportionate approach to service costing, including activity‑based techniques, overhead apportionment, staff‑time capture options, and linking costs to outcomes. The Treasury will set a consistent standard for service costing, driven by departments and coordinated by the Government Finance Function. The standard will define: • clear scope and boundaries for end‑to‑end services; • a minimum data set for service costs (people, process, technology, estates); • benchmarking and continuous improvement mechanisms; • integration of risk, schedule and performance metrics; • governance and assurance requirements at key decision points. Consistency will be supported by the NOVA reference mode (NOVA is the UK Government’s standardised, digital reference model that sets out leading‑practice processes and data standards for Finance, HR, Commercial and Grants functions to improve consistency, efficiency and interoperability across departments), rollout of common ERP (Enterprise Resource Planning) solutions under the Shared Services Strategy for government, and a common chart of accounts, enabling comparable capture and reporting of service costs. Capability will be strengthened through the Government Finance Academy and peer support via the Finance Foundations Group. Departments will pilot the standard and share lessons learned to refine the approach. Progress will be reviewed through end‑year functional assessments and existing performance management processes, with targeted support where barriers (such as legacy systems or data quality) impede delivery.