Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Rejected
Publish a plan to embed efficiency incentives within the fee-setting framework to reward productivity improvements.
Recommendation
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
Government Response Summary
The government rejects the recommendation, stating its existing Government Efficiency Framework and Spending Review targets already provide adequate incentives for departments to drive efficiencies in fee-funded services and track performance.
Government Response
Rejected
HM Government
Rejected
The government disagrees with the Committee’s recommendation. The government agrees that incentives on departments for cost reduction and productivity improvements should apply as equally to all services regardless of the funding mechanism. The Government Efficiency Framework (GEF) already provides extensive guidance for efficiency in the fee-setting framework and endorses public sector organisations to use the framework as a guiding set of principles on how they progress and track efficiencies. Where the costs of delivering a fee or charge service have been reduced through a technical efficiency and the fees/charges have been reduced (in line with 6.2.2. of Managing Public Money) and this can be clearly evidenced; this can be included as a monetisable non cashable efficiency. Departments are therefore incentivised to drive efficiencies in their fee-funded services as this will count towards their bespoke technical efficiency targets agreed at the 2025 Spending Review. All government departments identified at least 5% savings and efficiencies by 2028-29, delivering technical efficiencies of almost £14 billion a year by 2028-29, with funding repurposed towards core priorities. The government is committed to continuous improvement and will repeat the technical efficiencies process at the next Spending Review. Treasury, Parliament and the public will be able to both track and hold public bodies to account on how they are achieving efficiency savings to both the taxpayer and the fee payer as part of their overall publicly reported steps towards meeting their efficiency targets. This will also be assessed as part of departments’ annual financial performance evaluations.