Recommendation 5

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