Government services: Identifying costs and generating income

Status / emerging findings

• No government service examined consistently met 100% cost-recovery targets between 2019–24; average recovery was 88% in 2023–24, with HMPO recording a £916 million deficit over five years
• Most departments lack systematic understanding of individual service costs despite sophisticated costing existing in NHS, education, and DWP; Treasury guidance and support has been inadequate
• Fee adjustments take 6 months to over 2 years due to lengthy legislative and consultation processes, creating backlogs that prevent cost-responsive pricing
• Legacy IT systems identified as major barrier; DSIT has baselined them but has not prioritized which to address first to reduce operational costs
• Government Finance Function launched new costing strategy in February 2025, but implementation hampered by lack of data commonality and skills gaps across departments

Why it matters

If government doesn't understand what services cost or can't adjust user fees fairly, taxpayers subsidize some services while others overcharge users—affecting both affordability of public services and fair distribution of costs.

Tone arc

Started procedurally focused on cost-setting mechanisms; shifted critical after evidence revealed systemic failures (no service meeting targets, 5-year deficits, slow fee processes) and systemic capability gaps (legacy systems, weak Treasury oversight, inconsistent departmental practice).

Key witnesses

HM Treasury (James Bowler CB, Treasury officials), Cabinet Office and Government Finance Function (Cat Little CB), Department for Science, Innovation and Technology (Andrew Cartner, DSIT Permanent Secretary), HM Passport Office (evidence on £916 million deficit), Ministry of Justice (Farhad Chikhalia, on court/tribunal fee failures), Driver and Vehicle Licensing Agency (Nick Donlevy, DVLA—example of frozen fees with efficiency gains), National Audit Office (NAO costing analysis)