Welcome to the Public Accounts Committee on Thursday 16 October 2025. Government charge users for some services that they provide, such as applying for a passport or driving licence, as well as licences to operate in specific sectors, such as gambling or finance. It sets fees and charges to recover the cost of providing these services to reduce the need for taxpayer funding. The total income from these fees and charges in the last data we have was around £9 billion in 2022-23. It also does so to improve transparency about the costs and efficiency of Government services. However, the recent NAO Report on this subject found that, across the last five years, from 2019 to 2024, none of the Government services it reviewed had consistently met its cost recovery target. Today, we will be looking to establish the key challenges that Departments face when trying to achieve cost recovery. We will also be examining the Treasury’s role in overseeing and supporting the financial management of charged services across Government, as well as exploring how the current arrangements can be improved. I am going to ask all of the witnesses, starting with James Bowler CB, Permanent Secretary at the Treasury, to briefly introduce themselves so that everybody knows who they are and they are on the record.

Good morning. I am James Bowler, Permanent Secretary of the Treasury.

Good morning. I am Nick Donlevy. I am director of public spending in the Treasury.

Good morning. I am Matthew Taylor, director of public services in the Treasury.

You have just changed your title.

I have changed jobs.

I am hoping that that is congratulations, not commiserations.

I am Farhad Chikhalia, director for finance, strategy and partnerships at MOJ.

Good morning. I am Tim Moss, chief exec at the DVLA.

Matthew, Tim and Farhad, this is your first appearance in front of the Committee, so a special welcome to you. Hopefully you will not be so put off that you will not want to come again. A special welcome also goes to the Public Debt and Privatisation Committee of the Parliament of Kenya, who have joined us today in the public gallery. You are busy people, so do not feel that you need to stay for the whole hearing. You are very welcome to stay for as long or as little as you want. I have a sad announcement today. I would like to thank at this moment Marius Gallaher, who was the Alternate Treasury Officer of Accounts, for his dedicated work in supporting this Committee over the years. Marius officially retired from his post at the Treasury on 24 September, and has served as the Alternate Treasury Officer of Accounts since 2006, having worked in the Treasury in other roles for many years before that. At nearly 20 years, this is the longest that anyone has ever held the role of Treasury Officer of Accounts represented at the PAC, beating the 17-year stint that Edward Hamilton set from 1885 to 1902. I will just drop him a line, but we do wish Marius all the best in his future endeavours, and a happy and healthy retirement. Permanent Secretary, I gather you wish to say a few words.

Thank you very much indeed. Let me I echo that and put on the record that Marius Gallaher joined the civil service 49 years ago. He joined the Treasury in 1986. He was in the first team that I was in when I joined the Treasury, and very welcoming. He has been a consummate professional and has had a great career in the civil service, and we wish him well.

Thank you very much. All of these words are, of course, on the record. David, as the Treasury Officer of Accounts, do you wish to say anything?

Thank you very much, Chair. Thank you, James. We are very sorry to see Marius go, but hope that he is back to full health soon and has a long and healthy retirement.

Chair, if I may, I have a message from Gareth Davies, Comptroller General. I shall read it out to you: “I am pleased on behalf of the NAO to place on record my gratitude to Marius Gallaher for his significant contribution in furthering the cause of parliamentary accountability of Departments for the spending of taxpayers’ money. I value hugely the effective working relationship between TOA and NAO, and Marius has been a key part of that relationship over a long period. It has been a pleasure sharing the PAC horseshoe with Marius for so many fascinating sessions. For nearly 20 years, whether in his regular public appearances representing TOA at PAC sessions, or in his dealings with NAO and departmental colleagues, Marius has always conducted himself with great professionalism, and we have benefited from his great wisdom. We all wish Marius a long and healthy retirement”.

Thank you very much, and will you thank C&AG for those words? I hope that we are now ready to get into the main hearing, but, Permanent Secretary, you may have been warned that Sarah is going to ask a question on driving licences. Is that correct?

Yes. I have a quick question for Tim Moss, if I may. It is around those who have revoked their driving licence for medical reasons and are trying to renew it but waiting an unreasonable amount of time to get their licence renewed. Are you able to give the Committee an update on what the DVLA is doing to shorten the amount of time that they are waiting?

Yes, absolutely. We recognise that too many people wait far too long for those decisions. These are often very complex cases. There is a huge range, from some of those with simpler cases linked to diabetes, where they get a response in a few days, to very complex cases that require lots of dialogue with medical experts, et cetera. Back on 1 September, we moved our casework system on to a modern Microsoft Dynamics platform as part of our transformation of the drivers medical system. The previous system has been in place for 20-plus years, and just does not give us the functionality or the flexibility to do that. We have launched the new system and are in the process of transition, so we are having to run down cases on the old system and put new ones on the new system. That is stage one of our transformation. The second stage, which will be coming probably early in the new year, is what we call a new medical services platform, which will enable a lot more of these transactions to be dealt with digitally and directly. Again, the combination of those two will help us to really drive down the time that it takes to make decisions. One example of what the new system also allows us to do is to prioritise those who currently do not have a licence. Under the old system, we just had to deal with them as they came in. Some people already have a licence and can carry on driving, but we need to confirm some of those things. We are then able to prioritise those who do not have a licence, so we can deal with the most urgent cases more quickly. We are at that point where we are in that period of transition, so things are nowhere near where we want to be at the moment. With those two stages of transformation, we will be driving that down, but it will take us into next year to be able to get to the level of standard that our customers deserve.

Would you keep us updated on that, Tim? Our constituents are very concerned about this, particularly where there are complicated medical problems. We would be really grateful if you would keep us updated in writing on that transformation programme.

Yes, I am happy to do that.

That is very kind, thank you. We now move on to the main session. James, the report makes clear that the average mean cost recovery rate in 2023-24 across the seven services that the NAO examined was only 88% against a 100% recovery target rate. Clearly, if you do not recover your full costs, you are going to have to recover it at some time. As we know from various examples, if you leave it too long to recover, or you over‑recover or under‑recover, it is putting either present or future fee payers at an advantage or a disadvantage. What more can be done to make sure that all of the fee-charging bodies alter their rates to recover 100% properly?

We very much welcome the report, and it will very much help us. On the specific point that you make, if you are not recovering full cost recovery in your fees, that needs to be an explicit decision, and that decision needs to have the explicit consent of the Treasury that you are doing so, and needs to be regularly reviewed. It is not the case that you must absolutely always get full cost recovery at all times, and you can under-recover, but it needs to be an explicit decision with Treasury consent to do so. As you say, if you are under-recovering your costs, you are therefore subsidising the delivery of the cost of that service from general taxation, which, in itself, needs to be clear. You also, of course, need to be alive to the fact that that is what you are doing, as well as the costs of that and how efficiently you can do that. In general, in terms of what we intend to do, coming out of the Treasury, the report shows that we have set guidance for this in the past, but what we have not done as well as we might, and what we fully intend to do, is regularly assess and look at the system, help Departments navigate it, be more transparent, including to Parliament and the auditors, and use best practice, so that, if you are getting a decision such as to under-recover, you are doing that very explicitly and you either have a plan to get to full cost recovery or you are very clear that you do not, why you do not and what the consequences of that are. I am sure that we will get into the detail of that.

Thank you for that answer. In declaring an interest as chair of the all-party parliamentary group on shooting and conservation, we have had quite a problem with updating fees for renewal and granting shotguns and firearms. It has been eight years since the previous renewal and today, and the net result was that the fees went up 138%. Why can the Treasury not insist that all Departments do this on a more regular basis—and preferably, frankly, on an annual basis—incorporating inflation?

You make a good point. I am not an expert on the shotgun licence situation out of the Home Office, but, having looked into it a little bit, it is the case that the decision was to under-collect on those fees. I understand that they had not been reviewed since 2015. This Government had a manifesto commitment to do full cost recovery. They implemented that, so the fee, as you said, did increase quite a bit in 2025. The lessons learned from that are precisely the ones that you say, which is that they now have an intention to look at that annually. Of course, there was quite a bit of variation in the cost and how the police went about licensing shotguns, and the College of Policing and others are now standardising the training and how people go about that, including using the higher fee to statutorily make sure that people do that. To your point more generally, the big thing coming out of this report is that fees and charges must be kept under regular review. We are saying that that should be the case in the guidance that we issue, and then we are doing it because we will have spending reviews every two years. Spending reviews will look at the levels of fees and charges and, therefore, the level of subsidy. If you are undercharging, a Department is minded to cover the costs of full recovery and, therefore, you need an explicit decision on the level of fees at least every two years. In terms of transparency, we are also requiring that, in the annual report and accounts, you list the cost and the extent to which that cost is under‑recovered or over-recovered.

Can we be quite clear on this two-year spending review? It will be expected that each body that is charging fees will have corrected any undercharging or overcharging at that point.

Every two years, people will examine the costs that they are charging. They will need to be clear about the extent to which that is undercharged or overcharged, and it will need to be an explicit decision to not fully recover, so not quite what you said. You can continue to undercharge, but that needs to be an explicit decision. At the moment, the costs of passports are not fully recovered. That needs to be an explicit decision. In terms of the opportunity cost of the spending that you are therefore using to make up the difference, you are taking that as a conscious decision that that is what you want to do, and that should be reviewed. I might be putting words in your mouth, but it is not the case that, every two years, all costs will be fully recovered. It is more that you are taking an explicit decision as to whether, if you are undercharging, or, indeed, overcharging, you are doing that, first, by design, secondly, with consent and, thirdly, while examining the implications of that.

In any case, this will all be subject to reporting in the annual report and accounts, so Parliament will be able to examine that on an annual basis anyway.

Yes. Every year, on an annual basis, you will see the costs and unit costs, and your Committee is taking a hearing on that shortly. You will see the extent to which a fee or charge is undercharged or overcharged. You will also see the vires on which any legislative decision is taken. The report covers some instances where that is unclear, so that will be clearer. There will be some other things, although I will need to flick through some papers to work out exactly what.

We will come back to some of that. Q10 [1]Mr Betts: First of all, to Farhad and Tim, the public often think that Government operate very slowly. If the public were aware that it takes over a year to change a charge or a fee, they would be confirmed in their view, would they not, that Government just take too long to do very basic things?

From a justice perspective, the report mentioned the 12-month timeframe for changing fees. There is some context behind that. The 2001 fee change that is the basis of that was the first fee increase that was made in quite a few years. The last point before then that fees had been increased was in 2017. Since then, the MOJ has done quite a lot of work to improve the costing methodology on which fees were calculated. Because it had been the first fee increase in quite a long time, we did an extensive piece of consultation to set out the basis on which fees were being increased, which is why that 12-month timeframe was what it was. That said, the consultation that we had done at the time established the basis that, in the future, if we were doing inflationary fee increases, we would do so without consultation, because that was something that we were moving to on a more regular basis. More recently, the fee increases that we have done in the last year from the same process took us about six months. As James said, we want to move to a process of doing fee increases on an annual basis, such that we get into a regular rhythm and we are able to shorten the timeframes that are mentioned in the report.

It is not just how often you do it, though, is it? An annual review is probably very sensible, but, when you do the review, why does it take so long? We are talking here about virtually every change taking at least six months, and some of them taking over a year. In one case, they take over two years. It is just astounding, is it not?

Mr Moss will have some really interesting examples about using a section 102 thing, which does not make it immediate, but how you can use secondary legislation to try to ease this. I would identify two elements. There is the prep consultation and what you want to do element of that, which we can and must speed up. The way we are trying to speed that up is, in particular, through using a standard template, which comes out of some of the international experience that we got and is recommended in the NAO Report, so that we are helping Departments by saying, “If you want to change your fees, these are the things that you need to think about and do”. It is a standard template that speeds things up, and we can help on that. The second part of it is a legislative element. If you change your fees, there is a legislative side to it, and there are some choices there. As you all know, legislation is not quick, and there is a bit of a choice between parliamentary scrutiny and speed, but it might be worth bringing in Mr Moss on this section 102 side of things.

Let us go to Tim Moss, and I will probably come back to the legislation.

There is a distinction between the two sections of this. There is the review that goes on within the agency, and then really understanding where we may have slight surpluses or deficits around particular services. The team will go through quite a rigorous review to look at what that means and whether there are options around where fee changes may be considered. That is a major review. Once we are clear that we need to review fees, there is a process to go through, initially with our parent Department, the DfT, whereby we discuss the strategy going forward and also get ministerial approval before we then we go into the process with Treasury and then the legislative programme, which includes consultation and the drafting of legislation to do it. By its nature, it is a long process. There are things that we can do to speed that up, both in terms of that review section at the start, and then also maybe on the legislative programme process. One of the things that we have at DVLA is the section 102 order, which was put in place to allow us to pull some of the drivers and vehicle services into one pot, which means that, with the balance of that, we have not needed to change fees as often as we may otherwise need to do. It allows for natural variations that go on to be accommodated within that, and gives us some flexibility to provide more stability around the fees that we charge, which is one of the reasons why the fees have not changed since 2014. Both the section 102 plus the work that we have done on an efficiency basis has helped us maintain those fees at the right level.

Just coming back to the process, we probably have to have SIs, because that is what the law currently requires, but should we not be doing a review now to see whether these are all necessary? We all know that there is a queue for SIs, particularly if the Government have a heavy legislative programme. Lots of SIs go with it, and the approach to things such as fees and charges is, presumably, “That is not terribly important. There is no political imperative. Get to the back of the queue”. How can we avoid them getting in the queue in the first place?

There are some choices. You can either take these things in primary or, indeed, second legislation, or you can use primary legislation to give more sweeping powers to change these things with less scrutiny. That is an option. The section 102 model is an interesting one that we could follow more generally. The original Act, which I will not pretend to remember, gives the power for this section to look at these things in the round, and allows for making changes more quickly. To your wider point, and to the point in the Committee, we would be wrong to say that the whole system is as quick as lightning and then gets bogged down in legislation. That is not the case. There is quite a prolonged set of head-scratching, reviewing, consulting and going up and down the chain at the moment, which we can compound quite a bit. The template that the report recommends and that we have now implemented can speed that up considerably. As we all know with legislation, you can do things concurrently. The first step is for us to get our house in order in terms of how quickly we look at these things and change them. The big change here will be that Departments do not, individually, have to go on their own journey with pitfalls and obstacles, but that they can learn from each other and do it really quite speedily. At the end of that process, there is the option of taking some legislation that would allow this all to happen more smoothly and in less of a queue.

In terms of process, going back to what the Chair was saying, why is there not just a general policy whereby, every year, fees and charges go up by CPI, with a major review and a look at it every three years, rather than every year, and they just catch up with the process?

It is probably on the grounds of efficiency. If you take the DVLA, which Mr Moss can speak to, it is to their enormous credit and to the public’s benefit that its fees have not risen since 2014. That is not because it does not have the legislative vehicle or whatever to do it. It has delivered a really quite improved and digitally transformed service for the same costs as in 2014. In real terms, it has delivered a really quite large efficiency over an 11-year period there, and it is really great that it has the incentive to do that. If you just said to everyone, “Stick CPI on the end of your fees every year”, that would potentially build in a slight inefficiency to the system, because it is not necessarily the case that everything goes up by inflation every year. As you know, we have targets to try to make all public service delivery—and particularly the back office, if you like—cheaper and better. That is the reason. You might want to say more about how you have managed to keep fees level.

Over the period from 2014 to last year, our fees would have gone up by over 33% if we had done a CPI increase each year. We managed to absorb that within the agency through a range of things. There is a huge digital transformation that has gone on. We also did a major insourcing of our digital contract back in 2015, which saved a huge amount of money for the agency. Just having a CPI increase each year would go against a real drive to be efficient. We may need the mechanisms to do some of those things on a more frequent basis, where required, but I certainly do not think that it would be good to have an annual increase hardwired in.

On efficiency, we will come back to that general point in due course.

You make a good point. These are the trade-offs.

I am just going to follow my excellent deputy’s question. There is a case that we could simplify this process without diminishing parliamentary scrutiny too much. If you took consolidated legislation that said that, provided the individual fee and charging body had been set up by primary legislation, and then you issued whatever guidance was needed, the fees could be amended under that primary legislation, thereby avoiding the secondary legislation altogether. It would simply be a matter of the individual Department supervising their fee and charging body and accounting for the two-year spending review in their annual accounts. Parliament would have plenty of opportunity to examine these things without having, each time, to go and take secondary legislation. After all, if you wanted to put up a tax in the Treasury and had to, every time, go and get secondary legislation, we would never get anywhere.

When we put up a tax, we absolutely do have to get primary legislation.

It is all consolidated each year.

It is a frustration of democracy. You make a really good point. That is an option. We could certainly look at it. Maybe there is a different grading here. There is definitely a speed and efficiency thing to allow people such as MOJ and DVLA to run their businesses quickly and efficiently, and to adjust things reasonably, so you make a strong case there. Equally, the public and Parliament are really quite focused on particularly the fees of some things. Passports are a very evocative one, as are visas. There is a bit of a trade-off between the amount of powers that we give ourselves to change these things and the extent to which you need scrutiny, but the vehicle you have just described is a possibility.

I wanted to follow up with Farhad and Tim, if I may. What are the other challenges in setting fees accurately? The NAO Report is very clear that His Majesty’s Courts and Tribunals Service has an estimated £8.4 million that could be claimed in refunds. I am keen to tease out, in your respective agencies, what the other challenges are in setting the fees themselves.

In the Ministry of Justice, as you mentioned, we have had cases in the past where we have inadvertently overcharged fees and had to put in place refund schemes. We have done a lot of work in MOJ to make sure that that kind of thing does not happen again. Q17 [2]Sarah Green: Can I ask what the consequence of that is? In order to issue those refunds, that requires, presumably, a team of people to retrospectively identify and administer them, which is an extra burden on your team.

Yes, absolutely. We are in the position that we have not had to do that kind of refund scheme for quite a long time. The last one was in 2019. Since those previous cases where we have inadvertently overcharged, we did a big piece of work in 2020 looking at our costing methodology. The report talks about two types of costing. We moved from, effectively, an absorption costing model to an activity-based one, where we looked at, for each fee that we charged, what the underlying activity was, costed that up by working with the people who work on the frontline to understand, on an individual basis, what it takes to do this type of activity, and built up the fee from the ground up. On top of that, we add the overheads of running the Courts and Tribunals Service. What that means is that we now have confidence in how we set fees. We do an annual review of what those fees should be, based on the cost of that activity. In the MOJ, we have overcome one of the significant challenges that we have had in the past, which is accurately costing the underlying activity. The other big challenge for the Ministry of Justice is that, while we absolutely recognise that Managing Public Money says that there should be an intention to get to 100% cost recovery, the Lord Chancellor has a duty under the 2003 Courts Act to ensure that there is access to justice. While we want to try to get further towards that 100% cost recovery, we are also mindful of doing that in a way that does not inadvertently deny people access to justice, which we think is so important. We have some areas where we do not charge a fee at all because of the vulnerability of users. For example, we have over 36,000 domestic abuse applications a year, for which we do not charge a fee at all, because of the types of users who will come forward for that type of application.

From a DVLA point of view, it is very much the twin things about how you balance, essentially, customer demand with cost. To give an example, in 2020, the first year of covid, we saw a dramatic reduction in the number of vehicle registrations. That was the one year where our cost recovery was at 87% rather than closer to 100%, because you just cannot respond. That was a market-driven force that affected our income straight away. We have seen periods of high inflation. You will base your forecasts on set assumptions and particular contracts or particular things where those costs are wildly out. In reality, they are some of the pressures that you are trying to manage. Both the demand side and the cost side are some of the things that make it interesting at times to balance things.

You mentioned access to justice. Are there any trade-offs in the DVLA that you have to factor in?

Yes, absolutely, but this is one of the advantages that we have with the section 102 order, because it does allow us to do things. For example, when the fees changed in 2014, the requirement had been for those over 70 to renew their licence and pay a fee every three years. That fee was removed. We smoothed the costs across the whole driving licence time. Likewise, we do not charge for updates to the register, because we want people to update so that we have an accurate register. The transaction of changing your address is not one that we charge for. Again, the costs of that are rounded within the section 102 order, which then gives us that flexibility to do things. For those with medical conditions, that is a cost that we would bear.

Another example, although I am no expert, is passports. If you want next day delivery, it costs about £200. An adult passport costs about £90, and a child passport less. There is differential pricing, depending on the service you get. If you want a really quick service, that costs more. It is reasonable, but I am sure that you have examples.

One of the other ones that we think about in the Ministry of Justice is the wider behavioural aspects of how much it costs for a fee. For example, for money claims up to £300, the fee is £35. That is about a third of the cost of that activity. We are very mindful that, if we increase the cost to get further towards cost recovery, you reach a point where someone makes the decision that, for the cost of the fee, it is not worth pursuing that claim, which is probably not the right thing that we would want to incentivise in a justice system. The same also applies for fees for money claims that are significantly higher. For those above £200,000, the maximum fee is £10,000. We could increase that, but we are mindful that, if we did, there is a potential that that type of claim may be taken to other jurisdictions, which would have a wider impact on UK economic growth. Those kinds of behavioural impacts are also taken into account when we are setting fees.

Coming back to the DVLA, it is not just a question of setting the fees, but about collecting the money. Your collection rates have improved recently. Have you taken particular action to achieve that?

Are we talking mainly about the vehicle excise duty?

Yes.

Our collection rates are very high. In the last compliance survey that we did, we were at 98.7% compliance. There is a whole range of activities that take place as part of that process to ensure that people pay their vehicle tax, including ANPR enforcement and wheel clamping. We do a large number of prosecutions as well, to ensure that people do comply and pay their tax.

That means that you have to know the number of people who are not paying their tax.

If somebody does not pay, we will write to them a few days after the tax is due. That then kicks off a compliance and enforcement process. We also do on-road enforcement through our ANPR cars and with the contract that we have around that too, both as a deterrent factor but also to catch a number of people who are on the road without tax.

What percentage of people do you think are driving around without their vehicle properly licensed?

The last roadside survey was done in 2023. As I said, the compliance rate was 98.7%, so 1.3% was the figure that we had at the time. We are looking at how we may do that in a more effective way going forward, but that is the figure that we have.

Part of my constituency seems to have more than 1.3% of vehicles that are not licensed. You can go around the streets and look at them. It is a real problem, because they are often unroadworthy vehicles. You have the police and the local authority parking services involved, and then yourselves, where vehicles are not taxed. Trying to get your officers to come on a regular basis is a real challenge, and I just wonder whether you can adopt more flexibility to get that joint working at local level, which is really needed when there is a systemic problem in some areas among certain businesses, shall we say, running illegal repair shops at the same time.

I cannot comment on the repair shops. We work closely with our partners—both the police and local authorities—and we have programmes of joint operations with our enforcement teams in particular areas that we target. With all these things, it is about where you can target and the resources that you have to make the biggest impact. I am sure that there are things that we can do to improve the way that we operate. Overall, the compliance rates are good, but there is more that we can do. There will be pockets where there is probably greater evasion, and we need to think about what we can do there.

You are reviewing how you are doing the evaluation of non‑compliance.

At the moment, we are looking at our enforcement strategy and thinking about what more we can do in the future. It was also something that was raised by the NAO in the section 2 report in our accounts last year, in terms of how we look at the cost of that and how we are evaluating the effectiveness of our enforcement activities. These are some of the activities that we are doing over the next few months to ask how we can be more effective in enforcement. Overall, the compliance rates are at a good level.

Would the Ministry of Justice be happy if you got your compliance rates up to the same standard?

We have a very unique system in terms of how people apply for these fees. It is something that we monitor on an ongoing basis. There is probably a lot that we can learn from the DVLA.

Are there lessons that you can learn?

Yes, absolutely. One of the things that we are keen to do in general when it comes to setting our fees and how we do things such as income recovery is to learn from other Government Departments and see where there are real pockets of best practice that we should be able to learn from.

It may be, Clive, that, if you have an individual problem, you might want to correspond with Tim offline.

Yes, I will drop him a note.

I am happy to pick that up and have a look at it.

May I ask you, James Bowler, for your reflections on how well the Treasury manages its function in overseeing how Departments are managing their charging?

I would reflect that we have perhaps been too passive in the past in terms of relying on the guidance. As this Committee knows only too well, the system is that the Treasury sets and accounting officers follow the guidance. We have come to the conclusion, as does the report, that we need to be much more systematic, post guidance, in how we monitor, regularly assess, be transparent and all the rest of it. Our focus is on regular assessment, transparency, efficiency and sharing best practice. That is where the Treasury can do a better job. We have plans to do that. Indeed, never to miss a beat, we have also updated our guidance in Managing Public Money, which is really important. I think it is chapter 6, but David will tell me. Our job is to set the guidance. It is for AOs to follow, but we can help them, and it is that last bit that we can improve, and we plan to.

I would be interested to hear from Farhad and Tim their reflections on how that interaction with the Treasury works in practice at present in terms of the guidance that they provide, whether they challenge what you say, or whether they provide any best practice or any templates to follow at present.

From an MOJ perspective, the relationship works really well. We have regular conversations with our Treasury colleagues on fees across the Courts and Tribunals Service space. As James mentioned, there is particular scrutiny when we are in spending reviews about what our recovery level is and what the options are for increasing that. Colleagues on the Treasury side are very mindful of the challenges on access to justice and some of the difficulties that we face in terms of very quickly increasing the recovery level. On sharing best practice, it is something that we are seeing more and more of as we are doing policy development in particular, where we are considering fees that we might not have considered before. Again, it is an ongoing dialogue that we have and, from my perspective, that relationship works really well.

I would certainly echo that. In terms of the steps that are being looked at, whether it be the templates or the guidance, there is also more that we can do to share good practice and get those responsible for fees together to talk about what we are doing and some of the challenges. That is really important. I would echo that the relationship works well. There is more that we can do in terms of that forward look around things. One of the things that we are looking to develop is a clearer strategy for the future for our finances, which will include where we want to go for fees and how we can have early discussions with both DfT and with Treasury on that, which can help in terms of that longer-term planning.

Nick, looking forward, what is the Treasury looking to do to help strengthen the arrangements to improve oversight of fee setting?

It is a very similar theme to what James has talked through. The first thing is the strengthened guidance and much more clarity about what should be considered when you are looking at setting fees. That has definitely been quite a significant journey of improvement. I used to work in the Ministry of Justice, in a role similar to Farhad’s, when we were looking at fees, and it was much less clear in terms of what the guidance was. We have made huge improvements there. Learning from best practice and adopting the approach of the Environment Agency, which has been successful in relation to the template, which we have now adopted as part of Managing Public Money, is really helpful in terms of setting out a set of things that Departments should consider as standard. That means that Treasury spending teams will get better at having conversations with Departments about the implications of and the justification for different levels of fee charging. Having the regular spending review process will mean that there is a mechanism by which Departments will look in total at their overall cost base and funding requirements. We can then have a conversation about how that is met between monies from the Exchequer, money from fees and charges, and any other sources. While Departments will then look at that as part of their business planning process on an annual basis, to have that regular stock take every two years is a really important part of this process. Enhanced transparency through making sure that we have aligned Managing Public Money with the financial reporting manual, and that we are really clear with Departments on what should be covered in annual reports and accounts, means that Departments are reporting this information in a consistent and standard way, which helps the Treasury.

Is that not the case at present?

It has not been. There has been a bit of an inconsistency to date. That was an issue that the NAO picked up, and something that we have been looking to address very quickly. Again, that means that, when we are more consistent across Government about how we report this, it becomes easier for external parties, and particularly Parliament, to hold us to account for the information, and also for the Treasury to have a better understanding of what is happening in individual Departments and, if there are issues, for those to be addressed. It also makes it easier for an accounting officer to hold their Department to account, and to make sure that they are fulfilling their responsibilities under Managing Public Money for driving efficiency in the way in which they are delivering their services, but also that they are meeting the requirements of Managing Public Money in relation to fees and charges, and Parliament’s expectations about what those fees and charges should cover.

May I draw you in, Matthew, if I may, about roles and responsibilities, in terms of who is responsible for what? What is the Department doing to clarify who is expected to do what in this process?

I oversee a number of the relevant spending teams in the Treasury. The best spending teams—and they do their job extremely well, as I hope Farhad will say—are in regular, constant contact with their spending Departments about all of these issues. The sorts of improvements in the processes that Nick has set out will allow the spending teams to guide spending Departments through the process with clarity on what the guidance is and to provide constructive challenge and process for the changes with the rapidity that you want to see. It is a constant, iterative process of conversation, but the clear guidance allows us to move through that process as quickly as possible.

Nick Donlevy, given what the Permanent Secretary has said, it seems that you are tightening up on the guidance that you are giving to all the fee-charging bodies. If they know that, there should be a distinct change in behaviour on all of them to want to look at their processes in a more timely way anyway. Would you agree with that?

Yes, I would certainly agree with that.

Figure 1 on page 7 is very interesting. Tim Moss, if you look at that figure, you are exemplary in the fact that you recover your costs against your revenue, but, looking at that table, Nick, a lot do not. What that shows, maybe through the section 102 situation, is that setting an overall parameter to each charging body, but allowing them, within that, to determine how they recover their total overall costs so that they can have different objectives, which might be trying to get more efficiencies in one part of the organisation, or allowing access to certain groups in society that need a reduced fee, seems to be working quite well. As long as you get the total recovery right, which is a different matter, allowing individual charging bodies to decide within their organisation how to allocate that charge seems to be working quite well.

Yes. That is working quite well, and bodies have the appropriate mechanisms to alter fees to meet their costs. The thing that figure 1 really does bring out is the policy choices that Ministers have made about where charges should be made. Farhad brought that out really well in terms of some of the policy decisions that are made in the Ministry of Justice about where Ministers do and do not want to charge fees, because they want to make sure that they are protecting access to justice.

May I build on that? Figure 1 is really helpful, and a nod, by the way, to the whole of Government accounts, which is where we get the £9 billion figure from.

That is in December.

I will see you in a few weeks on that one. Literally, full marks to the driving licence fees to the nearest million, although things can vary. Figure 1 begs the question, “Why is there a difference between costs and revenue? Can you explain why?” That must be with the consent of the Treasury and a policy decision by Ministers to do that and to understand the consequences. If you are undercharging, you need the consent of the Treasury. If you are overcharging, which we have not discussed yet, and you are collecting a surplus, you need not only the consent of the Treasury but legislative consent. Each time, you ask yourself, “Why is there a difference?” On visas, it is a legislated and explicit, and then consented, desire to recover more than the cost of the visas, which helps cross-subsidise the immigration system. It does not pay for all of it. The costs are half the revenue. On passports at the moment, it is the case that we are undercharging full cost recovery. Mr Taylor can tell you more details on that, but we have increased the cost base as well in that. It is a really helpful diagram, and you ask yourself, “If it is not exact cost recovery, why is that the case? Is there consent to do that differently? Do you have legislative consent to overcharge?” To carry on the conversation that I was having, the obvious point is about whether we are regularly looking at that. Are we transparent about that? The Treasury can be very actively having ongoing discussions on that, rather than this being perhaps the case that you were mentioning, whereby many years have passed since something has been examined.

That is really helpful. Taking that guidance, if you like, from the Treasury, Matthew Taylor, let us go from the general to the specific. What action did you take when, for example, you found that the Passport Agency was consistently under-recovering its costs?

The under-recovery of passport costs primarily reflects the inclusion in the cost base in recent years, and not just of the production of passports, but wider costs associated with the processing of UK citizens at the border. That will include the costs of consular services replacement passports, for example. Since 2023, we have been in conversations with the Home Office and the Passport Agency in order to make efforts to bring passports to a full cost recovery position. That has resulted in a cumulative increase of 25% between January 2023 and April 2025. We are continuing to have that conversation with the Home Office and the Passport Agency in order to work out whether there are particular efficiencies that can be made and what we can do more broadly in order to address the position.

This morning, we have discussed the impact on individual users of the fee-charging body—in this case, passports—but it is not just that, is it? If the fee-charging body consistently under-recovers its costs, it means that the Home Office, which is the Department in this case, has to bear that cost, which means that it has less departmental money to spend on something else.

That, of course, is the case. We have noted that the full costs of producing passports over recent years has outpaced increases in income. We are working with the Home Office to reduce the costs of producing passports. There is plenty of scope to use increased technology or AI to do that in order to bring them to a full recovery position, but any decision on the costs is a matter for Ministers.

You have very sophisticated mechanisms in the Treasury to monitor any Department’s costs. I am just wondering what more you could do at an earlier stage to become alerted to a body such as the Passport Agency, which is consistently under-recovering its costs.

As I say, we are in regular conversation with them. I do not think that the position that we are in now is a result of a lack of data or a lack of awareness on the part of the Treasury. We are talking with them on a regular basis and working through how to address their current position.

Thank you very much. This is probably an appropriate point to take a break. Just be aware that microphones will still be on, so be careful of what you say.

Do not tell us what is in the Budget while you are talking.

Yes, exactly. We would like to know that. We will put a special microphone on you, James.

The revelation that we do not have to legislate for it is—

It gets worse and worse. Before we go too far down that line, we had better suspend broadcasting. The clock stands at about 10.57. If we could try to be back here promptly at 11.05, that would be great. Sitting suspended On resuming—

We are going to come back first to Anna Dixon, please.

Good morning. I am just going to pick up where we left off on figure 12 and this recognition that, in some areas, there may be other policy objectives beyond cost recovery. We have discussed that in relation to court and tribunal fees, where it is very important that there is fair access to justice and, therefore, recognition that some people cannot afford any fee, given their circumstance. I was interested in how this works in practice to ensure that there remains proper transparency. For example, my understanding was—you could reiterate and clarify, Permanent Secretary—that some proportion of passport fees is being used for some elements of immigration.

It is visa fees.

It is an element of the visa fees. This is why they stand at 211% of cost recovery.

There is a surplus on the cost of a visa. We are charging more than the strict cost of issuing those particular visas. If a Department or body wants to do that, it cannot just do it. It must do it, first, with the consent of the Treasury and, secondly, unlike undercharging, with the consent of Parliament. That does happen in visas, and the reason it happens is that the cost of the wider immigration scheme is substantial, and the overcharging on visas goes to ameliorate some of that cost. That is an explicit decision by Ministers and then Parliament to allow visas to overcharge.

In making that decision to permit that, it is specific about where that overallocation then goes in terms of it being, basically, to top up general revenues raised from taxes. I am just trying to get that clear.

Yes, that is right. It all goes into the cost of things. It costs a lot more than that too.

Effectively, it is a taking something out of a fee and putting it in with other general taxes. This is what I am trying to understand.

Yes, and Managing Public Money, which we mentioned, gives you guidance on how you can build up the cost of what you then charge for, and it says what you can and cannot include in that cost. It is permissive, so it does say, for example, that you can include the costs of things that you are trying to do to make the service more efficient. In this case of the running of the wider immigration scheme, you cannot put all the costs strictly into what you charge for a specific visa, so you do not, but you are clear that the charge that you are making for that visa—by the way, there is a raft of costs for different visas—is higher than the strict cost, were you to just charge at full cost recovery. It is very important, for exactly the reasons that you say, that you do not just do that. You explicitly have to have the Treasury’s consent to do that, which the Home Office has in the example of visas. Because of the point that you are essentially, as you say, raising revenue over and above the full recovery cost, you have to have Parliament’s consent, which, again, the Home Office does have.

That parliamentary consent is done through the consent to set the fee and then also through the main estimate, so the total forecast income that a Department will receive will be part of their main estimate alongside the monies from the Exchequer.

We could have two hypotheticals. If there was a policy objective to try to recoup some of the costs of gambling harm for gambling addiction services in the NHS, would it be possible, for example, to levy that on to gambling licences, or on, for example, driving licence fees to ameliorate some of the enforcement costs of the many people who we know are dangerously and illegally driving in unlicensed vehicles or without a valid driving licence?

It is difficult to get into the hypothetical, but the answer is that you have to be very transparent. You have to be clear about the actual costs of running a system to get a fee, and Managing Public Money is clear on what you can and cannot include. The answer to your question is that you cannot just add lots of things into the costs and then put the fee up. Instead, were you to do any of those things, you have to be clear that the cost of running the people and IT needed to run a particular service is this. If you set the fee above that, including for some wider objectives, you cannot say that the cost is higher. You would have to be explicit that you are overcharging on the cost. Ministers and Parliament might have their reasons for doing that. You would have to have the consent of the Treasury, and part of the Treasury’s consent would be to test the reasonableness of that, because, if you are raising money from the public, you also need to have Parliament’s consent. You would not alter the cost base per se to do that. If you are changing the fee there, you would be doing it through consent and parliamentary approval.

In terms of where we were going in relation to perhaps removing some of the decision-making from Parliament, it is very clear from your response that, where there is an additional fee over and above cost recovery for another policy objective, that should still be subject to a parliamentary oversight process, whereas increasing your fees because there is a justified cost recovery does seem to me, in answer to earlier questions from the Chair, more likely to be something that could be justified without such a lengthy statutory oversight. It has been very helpful to get those distinctions.

In all of the conversations that we have in our spending teams, we are very conscious of the burden that that places on spending Departments. We will always take into account the proportionality of the process and make sure that we are being as efficient as possible, and we take that on a case-by-case basis.

The sorts of changes that Mr Donlevy and Mr Bowler have set out will, I hope, allow clarity for both sides in working through the process. The template that we have is a relatively simple thing, and we can show it to you. It should be entirely proportionate, even for small Departments, to go through that process. Hopefully, they will also benefit from the sorts of sharing of best practice that we set out here today.

As I said earlier, more standardisation in terms of templates and guidance is always useful in terms of linking to our internal reviews of our fees, costs and charges. Anything like that to streamline the process will be of benefit, as will the other bit that we have said around sharing good practice and talking to others who are going through similar challenges.

It is likewise for us. From a financial reporting perspective, we feel we are in a good place to be able to share that kind of information, having done quite a robust change in our costing methodology. We would consider and welcome guidance on the best way to do that.

I think so. As Matthew said, we have regular conversations with our Treasury teams and they are able to really ably link us into other Departments where that good work is already happening.

Just coming back to the relationship between what the Treasury does and what Departments do, before you explained in some detail how the Treasury helps and assists Departments and gives templates for how they might look at reviewing fees. To the Ministry of Justice and the DVLA, is there anything more the Treasury could do to help you in this process?

The standardisation, which has already been planned, is a really welcome step. Up until now, the conversations that we have been having with the spending teams follow the expected pattern. Treasury colleagues, understandably, want us to improve the financial resilience of the justice system and we are working out the best way to do that within the fee system that we have. Something that allows us to build on the work that we have done to improve our costing methodology, but has a way of having that conversation in a set way, so we are looking at specific fees based on the landscape of fees that we have, is probably a better way to make sure that that conversation happens in the best possible way.

The measures have been outlined already in terms of the standardisation of the guidance. Ultimately, building an even stronger relationship between the Treasury and the DVLA will help going forward.

I recognise I should probably be quiet at this point, but one thing we have not discussed is the other side we can be helpful on, which is disclosure, helping Departments get ready to be audited by the NAO and making that audit clean, clear and not problematic. You will know from all of your other work that we place a big thing on timely and accurate accounts. NAO colleagues can speak for themselves, but they would potentially say that what they want is absolute clarity of where a Department is on its fees and charges, that is has all the consents that it needs, has followed all the processes properly and that, if it has changed anything, it has done it cleanly. You see in the report that not many bodies are fully compliant here. Another thing that we can do, hope to do and, in particular, this template does is gather all of that together well upstream of the NAO coming along. Therefore, the NAO has total clarity that all the processes have been followed and that they can audit fees cleanly. This has been a source of one of those many issues that can delay accounts and can be unclear. There is a disclosure and audit benefit here.

We do absolutely appreciate that, James. Thank you. Figure 13 outlines the fact that the public bodies we looked at did not fully fulfil their disclosure requirements. That is not only for the purpose of audit, but it is also for transparency to Parliament as well. It is important to get that right and to be absolutely transparent about how these fees and charges are set, the cost recovery rate and permissions to over-recover or under-recover. We are absolutely behind anything to increase that transparency.

In terms of what the Treasury might do, you have oversight across all the bodies that are setting the fees and charges. You can help them learn from each other, where there is good practice, and make sure it is shared. You must have your private conversations, where you say, “Look at that lot over there. If only they were as good as that lot over there, things would be a lot better for everyone”.

Yes, we do. That is another hearing. There are two answers. The first, and the one we should be clear on, is that we have a Government finance function. You will be aware that one of the challenges with a siloed AO approach is that everyone is doing things in silos and there are X hundred AOs. Are they all learning from each other? We have the horizontal Government finance function. We have set up a working group to share best practice on fees and charges, where the bigger fee chargers and the people who have been there, done it and seen it—colleagues to the left would be very much in that category—can share opportunities and frustrations with other fee chargers, and particularly people who might be going through this for the first time. We are trying to use that horizontal Government finance function to avoid people tripping over the same mistakes that others have. The things that we are doing—templates and other things—try to help that too. The Government finance function is really important to sharing this best practice, working through it and, of course, being a feedback mechanism for the Treasury. We can say, “This just is not working. We have the guidance. We are trying to get our AO to comply with it, but we are struggling here”, and we can change things accordingly.

In a wider sense, what lessons can be learned from other countries and how they do it? Are there any examples where you have actually learned and applied?

It might be figure 14 that has a little box. New Zealand features prominently. New Zealand does the template that we have now adopted and New Zealand has improved its cost guidance. The cost guidance, and particularly unit costing, is a really big part of this. You are having a hearing on it presently. They have updated their cost guidance. By the way, Westminster-style democracies have the same set up as us, with the AO concept. It is not vastly onerous to look at their guidance—which is all public, like ours—look at their templates and copy them, and that is what we have done. It is worth saying that the template we have done is a template that the Environment Agency was using. They, of their own volition, said, “How do we make sure we are doing all of this correctly?” They came up with the template. We have essentially used their best practice, copied this template more widely and shared it with everyone. It is also what New Zealand does. As Mr Taylor said, we would happily share it with the Committee. We are absolutely learning from other countries.

Just before we move off Treasury guidance, Permanent Secretary, can I take you to paragraph 3.5? At the bottom of the paragraph, it says, “HM Treasury also agreed its guidance could outline more clearly the hierarchy of trade-offs and risks faced by charging bodies and how best to manage these”. For the record, do you want to just emphasise that and just say how you intend to implement that?

There are two different ways that fees and charges can change. Mr Moss will be well placed to give you examples of this. They can change by an absolute decision to change your fee but, more generally, the revenue you are getting in from fees is based on a forecast. It may be right. It may be wrong. Your costs will be affected by all sorts of drivers, such as inflation, pay settlements and all the rest of it. This is recognition that any one body will have to manage all of these things. This is recognition that you would want to use best practice to get people to talk about these things. The best example I can give is the fact that vehicle licences cost £331 million in 2023 and raised £331 million. It is actually quite miraculous that they are exactly the same. I imagine that most years it is slightly different. There are trade-offs of hierarchies and issues that you need to do. Also, on the bigger point—and this is where the New Zealand example comes in—the biggest thing you would be worried about is a large discrepancy between cost and revenue. You would put that higher up a hierarchy than you would a minor differential because of something that particularly happened that year. It is important that, when we share best practice and look at each other’s things, we have a perspective and a hierarchy in doing that.

The Permanent Secretary has set out the parameters that you have to do. When I was reading this whole report, one thing that struck me is that the most difficult bit is forecasting demand and modelling. I would be very interested, given that you are exemplar in how to recover costs against your revenue, in how you do that.

It is an area we are looking to develop further. Over the last few years, we have employed more data scientists and done more in that forecasting space. It is about gathering as much data as you can, whether it be from economic forecasts, where we think new vehicle sales may go, or population information around those who are turning 17 and may be applying for their first provisional licence. They are some of the factors you would build into it. You also need to look at your cost model. We review our cost model on a regular basis. We update it monthly with the latest financial information we have from our finance system, and we balance our medium to long-term plan with our costing model to look at the forecasting we are doing. It does become difficult where you get big variations. Covid was one, but I could also go back into my previous life as a registrar of companies and at the Intellectual Property Office. There were big changes following Brexit around the number and register of trademarks. There were big changes in the number of new companies. Where you see dramatic changes, that is where it becomes really quite tricky to balance fees and costs. It is similar when you are going through significant digital transformation, which can impact on the way you do things. It works very well where things are reasonably stable but, as soon as you get some bigger variations, there are challenges. It is probably luck that we achieved exactly 100% on that year. There is always a tolerance from year to year. It is about balancing that and looking at it over a period of a few years, to say, “Are we broadly in balance between the fees that we are charging and the costs that we incur?” Q50 [3]Chair: Farhad, do you want to comment on this? Your forecasting and modelling must be quite difficult too.

Yes, absolutely. One of the things I should say is that, in the past, the costing methodologies that we have used have not been responsive enough to the kind of changes that we have had in volumes. Between 2018 and 2020, we had a costing methodology that, effectively, meant that, when volumes decreased, it looked as if the fees we were charging were too high, even though the underlying work for the activity had remained the same. That meant that, between 2018 and 2020, we had to do refund schemes, even though the cost of that activity had not meaningfully changed. For that reason, in 2020 we did a wholesale reform of our costing methodology and built it from the ground up. We were not looking at the cost at an aggregate level and trying to work out for an individual fee what that would cost. That means, going forward, the methodology should work much better for us. We also look at overheads over a five-year period, so that we get rid of some of the fluctuations that you get from year to year. We try to account for things like years where we have very high inflation. We try to work on a basis where we get rid of inflation. Those kinds of things mean the costing methodology we have now put in place will allow for more accurate costs to be set in the future and get rid of some of the fluctuations that we have had in the past, when the methodology has not been quite right.

If there are unplanned deficits that are not recovered, the main consequence is that Departments need to find the funds to meet those unfunded costs from elsewhere in their budget.

“Elsewhere” means across the full set of their budget. It would be for an accounting officer then to determine, with their Secretary of State, how they will look to find savings and efficiencies elsewhere to meet those costs. There are two different examples there. There is an overall objective to achieve full cost recovery over a period of time and then there is how that relates to what their financial plan is for any particular financial year. It might be the case, for example, with the Passport Office that they were expecting a particular level of fee income from their service users, they met that fee income, but it was lower than the overall target that they were trying to set. Therefore, within the financial year, they were living within their financial plan. That would have been a conversation we would have with that particular Department through the spending review.

In relation to the passport example, it is not as if people are receiving their passport and not paying their fee. It is that the total income from that line of business is not covering the total cost of the immigration system that that cost base covers. It will be up to Ministers to determine whether or not they want to change the fee that they charge for a passport to increase their cost recovery. Equally, the passport services have been running quite a long-term efficiency programme to reduce the cost of processing passports. That is also a way in which we can try to bring the cost of a Government service in line with the fee that Ministers want to charge for that particular service.

With passports—

Generally, money that is not found from fees and charges to cover the cost of a particular Government service will come from general taxation.

And, in this case, from the Home Office’s wider budget.

Yes, there is.

This is not a total surprise to the Home Office or, indeed, the Treasury. They know what they are getting in fees. They are accepting that they are subsidising that. Mr Taylor can say more, but they have changed their fees a bit. They need to keep it under review.

Mr Taylor set it out. They put it up over a period of time by 25% and they need to keep it under review. At the moment, it is the case, not least because their costs have increased, that they are undercharging compared to that cost base. The Treasury and Home Office are aware of that. The Home Office is aware that it is needing to subsidise.

That was not a surprise. That is what I was trying to make out.

That is where the two-year spending review process becomes important. That is the process through which we will review the costs of a particular Department and the various organisations and services they provide against the income that they get and, therefore, what that means in relation to their budgets.

Yes, it does.

Yes, exactly. We had the example with shotgun licences. You have given us the example on passports. The answer is to actively manage and to actively both understand and report.

“Actively manage” means that you are not only considering this every five years or whatever. You are reporting annually, in your annual report and accounts. You are reporting, indeed, the undercharging or overcharging and the unit cost, so that it is there for everyone to see. In the spending review, you are saying, for example, “I see that you are undercharging for that service you do. That means that, other things being equal, you are going to need to subsidise that service from the rest of your budget. Is that your plan?”

The spending review is every two years for three years in advance, so, yes, you are right. It is looking at the future; it is not looking at the year in date. Those conversations then have to bring out that this is an explicit decision to actively do something, rather than just leaving a situation to move along. It is quite a big change compared to the past. It could be the case, certainly in some of the smaller fees, that things were not reviewed as often as they might have been and then things got out of sync.

Yes, exactly. For a hypothetical example, if a Department wanted to carry on undercharging for a service, then the Treasury would point out that they are needing to subsidise that from the rest of their budget. The Treasury would not necessarily say, “Here is some additional money to subsidise that in perpetuity”, so that more taxation goes to that Department. There is clearly an opportunity cost to any subsidy that you choose, in services forgone or taxation forgone. There is the active choice. As I said at the start, that can mean that you, over a persistent time, choose to undercharge for a service. There is the example that MOJ gave about domestic abuse. I cannot see it being any time soon that Ministers are going to fully recover those costs and that is the right thing to do, but you are actively choosing to do that and you are understanding how you are subsidising that decision.

Yes.

Active management works both ways as an accounting officer. Each year, I have to sign off my accounts and we have to look at our fees and charges, ensuring that we have cost recovery. It is that relationship piece, actively managing that and reviewing the options we need to look at if we see a gap, as part of the spending review process. We have to have the right discussions with our parent Department, DfT, but also with Treasury. It is very much a two-way scenario.

It has not been totally absent from the picture. It has just not been systematic. As I said before, there is guidance and AOs have to follow it, but what you are seeing across what we do in the Treasury, which is the right direction of travel, is more specific guidance and more regularity and professionalism in how we go about it. The two-year spending review cycle, which has always been there, has not happened for a while. Now, we are clear that that will be the case. That gives us a drumbeat to do that. It is not the case that it has been totally absent and we are having a damascene change, if that is the right vocabulary. It is that we are trying to professionalise, standardise and be more systematic.

I am confident that that needs to be an absolutely explicit decision, not just carrying on the status quo.

That is a good challenge. We will probably come to efficiencies.

We are coming there next.

The segue would be that the Treasury wants to give Departments a strong incentive to keep costs and fees down because, ultimately, the user cannot be seen as just picking up whatever tab there is.

They do not want a shock. Transparency is important here. People should understand the cost of doing something. They are then free, in Parliament or in public, to question the cost of doing that. We will come to it in the costing thing, but it is really important that the public do understand that there is a cost to providing services and a fee charged. They tend not to see general taxation as clearly as they sometimes do a specific fee.

Absolutely, yes. The segue would probably be that you have seen DVLA keep their fee the same since 2014, which is really quite a feat. That is a 33% reduction in real terms. For those of us who remember having to go to the Post Office with your insurance and your whatever, and only being able to do it in working hours to get your thing, the service is totally different. There is quite a lot going on underneath the water.

I do not mind who from the Treasury teams answers this. You gave us a segue very kindly, Permanent Secretary. It is about efficiencies. On the face of it, as the NAO makes clear in paragraphs 3.14 to 3.16, merely seeking to recover costs does not give the individual fee-charging body and incentive to improve their efficiencies. There are some very good examples out there. When we were discussing the firearms increases, which were large, the Home Office took notice of our views that there was a huge variation in police performance. I am glad to say that, as a result of that, all 43 forces are now using the software NFLMS and we should see inefficiencies from the worst towards the best. The NAO Report gives the example of Companies House, which told us how it invested efficiency savings of around £0.3 million in 2024, exploring how artificial intelligence could enhance productivity. The question for all three of you is about what the Treasury can do to ensure that the fee payer is benefiting from an increase in efficiencies in the organisation. The DVLA is an exemplar in this.

Can I start off, Chair? Then I would be very grateful for colleagues’ assistance. It is about sticks and carrots. The sticks are that the AOs have a duty for value for money. That duty does not differentiate between sources of income. It is just on all spending. Other sticks, if you like, include the efficiency targets we have set in the spending review. You have examined that in this Committee. We are going to report on progress in annual reports and accounts, at the suggestion of this Committee. Again, those efficiency targets do not differentiate between what the spend is on or where the income comes from. It is across all areas. Then there are carrots, if you like. If you have a set budget and you do something cheaper—particularly if you are undercharging for a service—you would have to subsidise it less. That is a saving for you that you can spend elsewhere and that incentive is in the system.

Permanent Secretary, we have discussed this morning that only 88% of full cost recovery, at least in the seven bodies examined by the NAO, is taking place. It tends to be the other way around, with people being undercharged and, therefore, benefiting, but they could benefit more if the organisations were more efficient.

Yes, and it is the case that, if the costs of providing a service go down, you should pass that on to the end user. You cannot snaffle that and spend it on something else. You should do that but, where the 88% figure comes in, that shows that Departments are having to subsidise to do that. There is clearly an incentive for them to operate more efficiently and reduce that subsidy. That is the framework of things, and then perhaps you might want to get into some examples of how people have done it in practice.

Tim, I see you are itching to come in on this. Let me preface a question. It is very easy, is it not, for somebody like you, in charge of a big agency, to sit there and say, “We are doing quite well already”? When one of your IT people comes to you and says, “There is this wonderful new AI programme out there that would streamline this service and save this amount of money”, you might say, “There is a risk in that. I am not sure I want to do it”. What is the incentive for you to do it?

There are two elements to this. One is a real example. We have an efficiency target set as part of the spending review. It is at 5%. We have to achieve £28.6 million by the end of the spending review and we are actively looking at that. That, to us, is our minimum and the minimum we are targeting. We want to do over and above that, so we can then reinvest and improve services for customers. We can talk about fees. We can talk about efficiency but, ultimately, this is about the service the end customer gets. Where is it working well? We have some great examples of where it does. There are also examples, like with things like drivers’ medical, where it is not working as well as it can. Where can we reinvest? For me, the real incentive is how we then deliver a really good public service on the back of it. That is what we want to do and that ties in then to the reporting we put through. There are different levels to this. To give you an example, the team have done some great work recently around mail merge and economy mail and how we can use that, which will save us several million pounds a year. We are putting some of that additional resource into helping with some of the drivers’ medical work, because we recognise that that is an area where the service is not where it should be. That is over and above the things we are looking to do. The incentive is that we want to do a really good job. That is what the team get up for and that is what they really want to do. They do a great job at it.

Farhad, do you feel that your organisation is incentivised to do a really good job through efficiency savings?

Yes, absolutely. Efficiencies form a really key part of the conversation we have with the Treasury on an ongoing basis. As Tim said, the spending review sets a very challenging target for the Ministry of Justice and the Courts and Tribunal Service as part of that. We are taking that challenge really seriously. We are still in the middle of our business planning process, working out exactly where we put budgets to, working with the new Deputy Prime Minister. That drive for efficiency is core to what the Ministry of Justice does. Digitisation as part of that is one of the key things that we are talking about. We are really mindful about the progress that has been made in the Courts and Tribunal Service, through the reform programme, to move away from paper-based applications. We know that there is more that we can do, particularly in the civil jurisdiction, which is where quite a lot of our fees are based. We would hope that that is part of the picture of getting towards 100% cost recovery. From a justice perspective, it is probably both looking to increase fee income, where it is fair and feasible to do, alongside becoming more efficient to bring those costs down. That is our broader approach to getting towards 100% cost recovery.

We may well come back to this at some stage, because we in this Committee are very keen on increases in productivity, the use of modern technology and whether we are incentivising you well enough to do that. Does anybody just want to comment on that?

Do you want to say what we are doing on digital IT more generally?

The spending review was really underpinned by efficiency, both in phase 1, where we set budgets for 2025-26, and phase 2, where we set budgets up to 2028-29. We are expecting Departments to deliver 2.5% of efficiencies this year. They were then set a 1% efficiency target over the remainder of the spending review period on their overall budgets, with a 15% efficiency target on their admin budgets by 2029-30, to really try to get at those back office costs and make sure Departments are incentivised to reduce them. In total, Departments are going to be delivering £14 billion worth of efficiencies by 2028-29. The application of modern ways of working, digital technology, et cetera, will be really critical in supporting Departments to do that. As part of the allocations we made for the transformation fund at the spending review, we allocated about £1.2 billion over the spending review period to support cross-Government IT improvement and bring modern ways of working, artificial intelligence, et cetera, into the way in which we deliver public services, building on some really excellent examples, such as DVLA, to try to use those more broadly. Because we now have a clearer framework for how those Departments need to report against those efficiencies, we will be better able to hold Departments to account for making sure that those efficiencies are being delivered. They will be reporting the delivery against those efficiencies more consistently, and then also more transparently, in their annual report and accounts. That is predicated on quite a lot of enabling work that we are doing, working with the Cabinet Office and DSIT in particular, to make sure that we are supporting them on their digital transformation.

The only thing I would add is that we are very clear and keen on the fact that end users of public services can hugely benefit from digital transformation. In the areas we are looking at today, that has been very apparent. We all know that processes to get your driving licence or your passport have been totally transformed from even a decade ago. People will remember that, for passports in particular, there used to be a long queue to get it manually. I was surprised to read that the vast majority of people now do it online. Lots of steps have been taken out and it is much easier. The turnaround times are incredibly impressive. Often we beat ourselves up. There is quite an impressive tale of much better public service delivery, including in the areas we are looking at today.

You are right to pay tribute to the Passport Office. We know from our parliamentary offices that, during the pandemic, we had to go extraordinary lengths to get people’s queries sorted. Now, as you say, doing it online has been dramatically improved and speeded up. Thank you for paying tribute to them. Thank you, Nick, for that too, because we will be coming back to a lot of that, not least next week when we are examining the cost of Government services. Thank you for that.

Farhad, I want to ask a very specific question about the use of tech to improve efficiency and how that can bring down costs for users. I have been waging a campaign across two Parliaments now to scrap court transcript fees for victims of sexual assault. One of my constituents was charged £7,000 for the transcript of the rape trial that eventually led to her attacker going to prison. That seems a very onerous amount of money that someone should have to pay for a transcript of the trial of the crime they were a victim of. I uncovered, during that, that it is actually very expensive to produce the kind of quality of a court transcript that we really need. I have had some really good engagement with MOJ and Ministers in this Parliament about this. They are very keen to see action on this. They agree with me that that is an onerous fee. They are interested in looking at technology and how that can be used to produce a lower-cost transcript. I just wondered if you could tell me a little bit more about how the court system are looking at using technology to improve this kind of service.

It is something, as you say, Ministers are very mindful of. As you say, the costs are very high right now. AI technology has come along quite a lot in the last few years. We have a small innovation fund in the Department and one of the things it is actually funding is using this AI transcription in the Courts and Tribunals Service. It is at a relatively early stage and one of the things that we have come across recently, which has been a bit of a blocker, is working with these kinds of companies that have this kind of technology, but doing it in a way that protects victims who may have been through really horrific crimes. They will have transcripts of information that people do not want to be shared or do not want to be held. There are barriers to using the technology, but it absolutely is one of the things we are looking at. We really recognise the benefit that it can have for victims, if we are able to roll that out more widely and get rid of these kind of costs.

I very much support Sarah Olney’s campaign and I will no doubt pick that up with you afterwards. I have had constituents facing similar barriers to a fair hearing at employment tribunal, in part because there has been some issue about whether the judge’s notes in these cases should be made available and there is a very short window for appeal. Many of them have already spent tens of thousands of pounds out of their own pocket to try to seek justice and adding to that the thousands of pounds more to be able to get a transcript. Often, if they eventually do get the transcript, they have been timed out and are past the appeal date. I would urge looking at this across the piece as one of those hidden costs of justice that is prohibiting people in a number of areas. The one I would like to add is in employment tribunals.

Thank you. One of the things that we are looking at, through the work on digitisation that we are considering, is whether you can use that AI automation technology when judges are doing the work of typing up their notes. The thing, again, we are mindful of there is getting uptake of the use of that kind of technology, which can be a barrier. It is absolutely one of the things that we want to look at.

I will close this hearing. Thank you all very much for coming. It has been a really interesting hearing. You have been kind enough, Permanent Secretary, to indicate that there are things you can do to tighten up your guidance and procedures, and particularly the follow-up, to make sure that they are actually implemented. There is scope for some deregulation, with the caveat that Anna Dixon gave. If we are going to start charging for a whole lot of other activities, Parliament will want to know about that. There is lots of scope here to improve the system. There is a lot of money involved—almost £9 billion at the last count—so there is scope to improve the system. We are lucky to have had two of the chief executives here who are doing it very well. Can I thank you all very much for coming this morning to our Committee? We appreciate it. An uncorrected transcript of this hearing will be published on the Committee’s website in the coming days, following which we will consider the evidence provided and produce a report, no doubt with recommendations, in due course. Thank you again. [1] Correspondence from MOJ – re: Corrections letter [2] Correspondence from MOJ – re: Corrections letter [3] Correspondence from MOJ – re: Corrections letter