Government’s hazy understanding of the cost of public services must be improved, PAC urges

- Report finds lack of urgency in addressing long-standing legacy technology and data issues

A significant cultural shift across the civil service is required to better identify the costs of public services. In a new report on how government can achieve this, the Public Accounts Committee today calls for the Treasury and Cabinet Office to lay out the steps they will take to hold Permanent Secretaries of government departments to account for taking ownership of the identification of costs at a level that enables them to focus on where productivity and efficiency in individual services can be improved.

Central government departments spent around £450bn on the day-to-day running costs of services in 2024-25, but most departments lack a sufficient granular understanding of the cost of their services, the report finds. Departments are neither required nor incentivised enough to identify and use detailed costing information to drive productivity and efficiency. Standards for this information do exist, but are applied inconsistently across departments. The report calls for concrete ways to be set out in which Departments will start to identify and record service costs.

Outdated IT systems and a lack of common data standards are also identified by the PAC's report as a major challenge to understanding service costs, posing an obstacle to pulling together better data to bring about improvements. However, the report identifies a lack of urgency and clear leadership for resolving poor data issues and legacy systems. While the digital pay framework has recently been uplifted to market rates per past recommendations, the PAC remains concerned that it still falls short of industry rates in London and the South East. This will affect the recruitment and retention of people with sufficient seniority and calibre to lead the transformation required.

As part of the PAC's continuing scrutiny of government's use of artificial intelligence (AI), the report warns that legacy systems remain a major barrier to its use, limiting access to the data needed for effective implementation. They also pose a risk to government's cyber resilience, as established in the PAC's May 2025 report on the subject. Despite this, departments are already experimenting with AI. The technology offers potential to connect disparate data sources, but the PAC calls on government to recognise that progress must be focused and purposeful - trying to solve everything at once risks losing momentum. Prioritisation and clear milestones are key to avoiding drift and ensuring that AI delivers meaningful value.

The PAC further warns that a shift in mindset in the civil service is needed to better understand how time is spent and to make use of data for meaningful insights. There is no standard policy on time recording in the civil service; despite systems offering this capability, using them to do so remains optional. Desired levels of productivity improvements will not be achieved without effectively using every civil servant's time, as would be the norm in the private sector.

Sir Geoffrey Clifton-Brown MP, Chair of the Public Accounts Committee said: “Billions upon billions of pounds of taxpayers' money are spent every year on delivering public services. I have no doubt that it would surprise those same taxpayers to know that government has only the haziest of views on specifically how their pound is being spent. It is a matter of pure common sense that government's plans for more affordable public services will not manifest without a far more detailed picture of how much they are in fact costing.

“We welcome the beginnings of a change in thinking, which our Committee has previously called for, in the uprating of digital experts' salaries to improve recruitment and retention. These changes must now go further to match market rates in London and the South-East. We also identify other cultural shifts that will be required in the civil service to implement the change required – on the setting of targets for cost-identification, and on the proper recording of how civil servants are spending their time with an eye to improving productivity. This report may be viewed as a guide for central government to begin to achieve the change required.”

PAC report conclusions and recommendations 

Departments are neither required nor sufficiently incentivised to identify and use detailed costing information at a level that is needed to drive improvements in productivity and efficiency at individual service level. Responsibility for cost information is shared across the Treasury, Cabinet Office, and departments. While the Cabinet Office sets financial management frameworks, it does not systematically enforce compliance, relying instead on departments and internal auditors. There is no specific accountability for permanent secretaries or senior leaders to collect detailed cost data; current obligations focus on ensuring overall value for money. Although the Cabinet Office expects permanent secretaries to understand their cost drivers and how they change over time, the level of sophistication to which this is done is often insufficient and standards need improvement. Political sponsorship is considered essential, aligning with the government's goal of creating a more productive and agile state. Departments could be better incentivised through clearer accountability, follow-up, and visibility into their maturity levels. Introducing targets for getting processes and systems in place to identify the costs of services would sharpen focus but would require a significant cultural shift across the civil service where there are exceptional examples. Individuals should be praised and encouraged to provide incentives to others. The Treasury plans to clarify expectations for permanent secretaries in an upcoming 'Dear Accounting Officer' letter.

Recommendation 1. As part of the Treasury Minute response to this report, HM Treasury and the Cabinet Office should set out what steps they will take to hold Permanent Secretaries and other senior leaders in departments to account for taking ownership of the identification of costs at a level that enables them to focus on where productivity and efficiency in individual services can be improved. This could entail including a specific and explicit requirement in a ‘Dear Accounting Officer' letter.

Most departments lack a sufficient understanding of their service costs and departments need help from HM Treasury and the Government Finance Function on the practical steps they can take to improve and upskill. While standards for service costing and financial management exist, they lack the necessary sophistication and are applied inconsistently across departments. There is limited practical guidance and systematic support, with some progress in granular costing seen in local frontline services like schools and hospitals, which are easier to benchmark than unique central government services. Forums such as the Finance Foundations Group aim to share best practice. The Government Finance Function (GFF) is conducting a skills assessment and working to improve its understanding of cost drivers. It recognises the need for a significant shift, aligning with its new strategy that prioritises better use of data to enhance value for money. Departments are receptive to this push, especially given the efficiency targets set in the 2025 Spending Review. GFF acknowledges it does not have all the answers and is seeking to co-produce guidance with departments demonstrating good practice. To support this, GFF will work through the Finance Foundations Group to explore what can be done in more detail.

Recommendation 2. HM Treasury and the Government Finance Function should set out concrete ways in which departments must start to identify and record service costs within six months. This should include setting out what needs to be improved and practical guidance on how to make improvements.

Legacy IT systems are a significant contributory factor in the cost of government services and an impediment to being able to gather better data to bring about improvements. Departments face major challenges in collecting and analysing cost data due to legacy IT systems and siloed data structures. These outdated systems are a significant cost driver, requiring additional people and processes to work around system limitations, and hinder consistent data gathering. The Cabinet Office recognises the need for Permanent Secretaries to understand their legacy estate, while DSIT has baselined government legacy systems and reviewed departmental bids for funding in the 2025 Spending Review. However, quick wins often mask deeper issues like poor data quality and entrenched cultural barriers. The lack of common data standards across government complicates benchmarking and granular cost analysis. The Shared Services strategy offers potential for improved consistency in the future, but technical solutions alone are insufficient - cultural and process reforms will be constantly needed. There is no standard policy on time recording in the civil service, and despite ERP systems offering this capability, its use remains optional. The desired levels of productivity improvements will not be achieved without effective use of time for every civil servant as would be the norm in the private sector. A shift in mindset is needed to better understand how time is spent and to make use of data for meaningful insights.

Recommendation 3.

1. a) DSIT should provide the Committee with a baselined list of legacy systems identified and the services they support alongside the Treasury Minute response to this report.
2. b) In addition, DSIT should, within six months from the publication of this report, indicate which legacy systems should be targeted as a priority for further investigation into how far their limitations result in additional people and process costs in the operational business areas they support which, if addressed, would significantly reduce the costs of those services.

The lack of Single Service Owners with accountability for all aspects of an end-to-end service inhibits departments' ability to identify the visibility of a service's end-to-end cost and the incentive to reduce it. The absence of Single Service Owners (SSOs) with the right mandate and visibility prevents a full view of end-to-end service costs and weakens incentives to reduce them, as focus remains on individual components rather than the whole process. Achieving larger benefits requires deeper service understanding and, in some cases, re-engineering of those services. The SSO role is not well understood across departments compared to other senior roles, and more can be done to raise its profile. There is an opportunity to build on the existing community of Service Owners and the methodology from the Top 75 programme, which included industry benchmarks for segmented digital services. Permanent Secretaries should be responsible for appointing SSOs with appropriate skills and talent, though the Cabinet Office has not set a timeframe for this.

Recommendation 4.

1. a) The Cabinet Office should, within the next six months, require Permanent Secretaries to appoint Senior Single Service Owners for all remaining services identified by the Cabinet Office and the Government Digital Service which do not yet have one in place.
2. b) The Cabinet Office should set out a deadline by which Permanent Secretaries must complete the identification and appointment of SSOs for their remaining services.

There is a lack of urgency and clear leadership for resolving the legacy systems and poor data issues that inhibit the realisation of benefits through greater productivity and efficiency that departments will reap from new technology such as AI. Government transformation and efficiency efforts increasingly rely on artificial intelligence (AI), but legacy systems remain a major barrier, limiting access to the data needed for effective implementation. Despite this, departments are already experimenting with AI. Resource constraints at the centre of government mean less support is available compared to previous initiatives like the Top 75 programme. Although the digital pay framework has been revalorised, it still falls short of industry rates in London and the South East, affecting recruitment and retention. Addressing data and legacy issues requires sustained effort and resilience. AI offers potential to connect disparate data sources, but progress must be focused and purposeful - trying to solve everything at once risks losing momentum. Prioritisation and clear milestones are key to avoiding drift and ensuring that artificial intelligence delivers meaningful value.

Recommendation 5. As part of its response to this report, DSIT should set out how it will take the lead on systemic data and systems improvement across government in order to exploit new technologies such as AI. At the same time, the department should set out what further steps it will take to ensure it can both secure and retain board level CDIOs and senior specialists of the right calibre given it cannot match industry pay rates in all areas of the country.