HM Treasury DAO 05/26 on Service Costing and Fees

On 15 June 2026, HM Treasury published DAO 05/26, a short but important letter to accounting officers across government. It says departments and arm’s-length bodies should know the real cost of each service before they set fees, keep income or explain charges in their accounts. (gov.uk) That may sound like an inside-Whitehall finance note, but it matters in a very ordinary way. If a public body charges you for a licence, certificate, inspection or application, it should not be picking a number out of thin air. **What this means:** the state still has to show its workings. (gov.uk)

HM Treasury says service-level costing should be treated as something that is prioritised, clearly owned and used in decision-making, with proper senior oversight. Where it is proportionate, organisations should also appoint named service owners who are responsible for cost, performance and continuous improvement. (gov.uk) In plain English, government is being told that nobody should be able to shrug and say the figures belong to someone else. If no one owns the numbers, poor charging decisions are much easier to make and much harder to challenge. (gov.uk)

One of the most useful reminders in the DAO is that fees and charges are not the same as levies. A fee or charge is usually linked to the cost of providing a service to the user, while a levy depends on the legal authority behind it, and enforcement costs are generally excluded from the amount used to set an ordinary fee. (gov.uk) HM Treasury also accepts that surpluses and deficits can appear from time to time. But departments are told to judge recoverable costs over a defined period and aim for full cost recovery across that period, unless a different level has been agreed through a spending review. That is a useful brake on quiet overcharging as much as quiet underpricing. (gov.uk)

HM Treasury is equally firm about what happens after the money comes in. Departments need to know whether the law allows them to keep that income, pass it to a parent department or remit it to the Consolidated Fund, and that depends on the statutory authority behind the charge. (gov.uk) The DAO also says the usual rules on propriety, fraud risk and accountability still apply even when a service is funded by fees, levies or income collected by a third party on behalf of government. **What this means:** money does not become less public simply because it arrived through a charge rather than through general taxation. (gov.uk)

Another lesson here is about routine checking. HM Treasury says all fees and charges should be reviewed in detail at least every two years as part of the spending review process, with deeper checks from time to time to make sure charges are still set at the right level. (gov.uk) That matters because service costs do not stand still. Staff time, technology, demand and processes all change. If a department becomes more efficient and can clearly evidence lower delivery costs, the DAO says reduced charges can count as a monetisable non-cash-releasing efficiency in government reporting. In other words, better administration is meant to show up as fairer charging, not just tidier spreadsheets. (gov.uk)

For new or amended fees and charges, departments must go to HM Treasury for approval using the attached template, and existing charges that already had a business case can usually use that template instead of starting all over again. The point is not paperwork for its own sake; it is to make departments explain the legal basis, the cost treatment and the income plan before a charge goes live. (gov.uk) The transparency rules matter just as much. The DAO points to updates in Managing Public Money and the Financial Reporting Manual so that annual reports and accounts show, where material, the amount charged, full and unit costs, total income, any subsidy or overcharging, the financial objective and the statutory authority. If you want public trust, that is the minimum standard: people should be able to see what they are paying for and why. (gov.uk)

The letter ends with a reminder that Parliament still sets the boundary. If a service is compulsory and Parliament has not clearly allowed a charge, the assumption is that the service should be paid for through general taxation. If a service is discretionary, a fee may be more appropriate. And if a department is operating in a commercial market, HM Treasury expects commercial terms, including charges that reflect the cost of capital and comply with subsidy control rules. (gov.uk) That is why this small DAO deserves a wider audience than accountants. It is really a civics lesson about power and permission. Government departments can charge only when Parliament has allowed it, only on a basis they can defend, and only with enough openness for the public to check the sums. (gov.uk)