Source · Select Committees · Public Accounts Committee
Recommendation 9
9
Accepted
Existing service costing standards lack sophistication and are applied inconsistently across departments.
Recommendation
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
Government Response Summary
The government will implement practical costing guidance by July 2026, sitting alongside Managing Public Money and Value for Money and providing a common approach to service costing, and set a consistent standard for service costing.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Target implementation date: July 2026 HM Treasury and the Government Finance Function are co-ordinating practical 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.