Source · Select Committees · Public Accounts Committee
Recommendation 23
23
Rejected
Departments struggle to identify efficiencies due to inconsistent cost-modelling and insufficient data.
Recommendation
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
Government Response Summary
The government disagrees with the recommendation but states that the Government Efficiency Framework (GEF) already provides extensive guidance for efficiency in the fee-setting framework. They state that departments are 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.
Government Response
Rejected
HM Government
Rejected
5.1 The government disagrees with the Committee’s recommendation. 5.2 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. 5.3 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. 5.4 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. 5.5 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.