Recommendation 23

Departments and arm’s-length bodies struggle to identify opportunities to improve efficiency and value for money as they do not maintain detailed cost information. The NAO found charging bodies use different methods to calculate costs including a range of cost models with varying levels of detail. As a result, some bodies do not understand how their processes contribute to costs. MPM does not set out the relative merits of different cost-modelling approaches nor does it establish clear expectations for identifying efficiencies within fee-setting regimes.48 This contributes to inconsistent approaches across government, making it difficult to understand the true costs of services and to develop robust business cases for modernising legacy systems. The MoJ told us that it completed a review of its costing methodology in 2020, where it moved from an absorption costing model to an activity-based approach. In doing this, it assessed the costs of activities associated with each fee to improve cost-attribution.49 The Treasury told us that the 2025 spending review was underpinned by efficiency, with targets to encourage cost reductions which productivity improvements will be critical to achieve. It said that its Efficiency Framework will improve departments’ consistency in reporting efficiency gains, and help it hold them to account.50 Following the evidence session, Treasury drew to our attention to the fact that the updated Efficiency Framework emphasises that, where technical efficiencies are achieved from reducing the costs of delivering a charged service, the savings can count towards the department’s efficiency target agreed with Treasury.51