HM Treasury published DAO 05/26 on 15 June 2026 as a Dear Accounting Officer letter on service-level costing and income. The letter supplements Managing Public Money guidance on income and fees and charges, and tells accounting officers to ensure that service-level cost information underpins the management of income across their organisations. (gov.uk) For departments and arm's-length bodies, the message is practical. Service costing is being treated as a live management control for fee setting, income handling and reporting, rather than as a year-end finance exercise. HM Treasury says service-level costing should be prioritised and owned, with senior oversight inside each organisation. (gov.uk)
The letter states that understanding the full cost of services is essential to lawful and defensible fee setting and to sound financial management of income. It describes service costs and fees as mutually reinforcing: cost data informs the level of charges, and charges then need to be maintained at the level required to meet the intended cost-recovery position under Managing Public Money. (gov.uk) Accounting officers are told to improve the identification and accuracy of service-level cost information, maintain visibility of cost drivers and productivity opportunities, and ensure the data actively informs decisions. Where proportionate, organisations should give the work explicit senior ownership and appoint named Service Owners responsible for cost, performance and continuous improvement. HM Treasury says it will monitor progress through existing mechanisms, including End of Year Assessments, and through cross-government forums, with remediation plans where systemic barriers are identified. (gov.uk)
On fees, charges and levies, the DAO draws a legal and financial distinction. Whether income is a fee, a charge or a levy depends largely on the statutory authority being used and on whether the amount paid is connected to the cost of the service provided. The letter notes that enforcement costs are generally excluded from allowable fee costs, and it tells organisations to consider not only how an amount is calculated but also whether the income may lawfully be retained or must be passed to a parent department or the Consolidated Fund. (gov.uk) The working assumption remains full cost recovery. Managing Public Money says charges for public services normally recover full costs, calculated on an accruals basis and including overheads, depreciation and the cost of capital. DAO 05/26 adds that recoverable costs should be assessed over a defined period, with charges set to reach full cost recovery over that period unless a different level has been agreed at spending review. Where costs and charges vary materially over time, organisations are told to test both the legal basis and the fairness of that variation. (gov.uk)
The DAO also removes any suggestion that income-funded activity sits outside the normal propriety framework. It states that the rules in Managing Public Money apply regardless of whether a service is funded by general taxation, a dedicated levy or other income. Accounting officer duties, including fraud risk assessment duties, therefore apply to all public resources used by an organisation. (gov.uk) That point is especially relevant where income subject to Parliamentary authorisation is collected by a third party on behalf of the Secretary of State. The responsible accounting officer remains accountable for ensuring those duties are met. HM Treasury links this to concerns raised by the Public Accounts Committee about propriety and fraud risk, and points officials to the requirement for fraud risk assessments on areas of new major spend. (gov.uk)
HM Treasury also ties service-level costing to the government's efficiency agenda. The letter says all fees and charges should be reviewed in detail at least every two years as part of the spending review process, with periodic deep dives to check that charging levels remain correct. It adds that where a department can clearly evidence that technical efficiencies have reduced delivery costs and charges have been reduced accordingly, the result can count as a monetisable, non-cash-releasing efficiency for reporting purposes. (gov.uk) That sits alongside the wider Managing Public Money expectation that organisations should routinely review services and charging levels and seek ongoing efficiency gains. In practice, DAO 05/26 turns service-level costing into part of the evidence base for both value-for-money reporting and future charging decisions. (gov.uk)
On approvals, the process is explicit. All new or amended fees and charges must be submitted to HM Treasury for approval using the attached template. For amendments to existing fees and charges that have already been through a business case, the Treasury says the completed template will generally be accepted instead of a further business case; for new fees and charges, the template should be annexed to the business case. (gov.uk) The letter also brings fees, charges and levies directly into spending review planning. Departments are told to include expected income and income-funded expenditure in their returns and to make clear where the proposed approach will require Parliamentary approval. (gov.uk)
DAO 05/26 also restates the charging boundary set by Parliament. Where a public service must be provided but Parliament has not clearly authorised a charge, the letter says it is likely to be unlawful to impose one; in those cases, the presumption should be that the service is funded through general taxation. By contrast, discretionary services, including some financial assistance powers, may justify a fee connected to the exercise of the power. (gov.uk) Where a service is supplied in a commercial market, Managing Public Money expects it normally to be provided on commercial terms. The DAO says charges should usually reflect commercial rates, cover the cost of capital and remain compatible with the Subsidy Control Act. It also warns that organisations need clear legal advice on authority to charge where there is no explicit statutory power to supply the service. (gov.uk)
Transparency is the final strand. Managing Public Money states that Parliament should be fully informed about the use of charges, and the 2026-27 Government Financial Reporting Manual requires entities to provide an analysis of material fees and charges income for each service. That analysis should cover the financial objective, full and unit costs, total income, any subsidy or overcharging, the amount charged and the statutory authority for the charge. (assets.publishing.service.gov.uk) For public bodies, the immediate implication is operational rather than cosmetic. Fee-based services will need defensible cost models, clear legal authority, named ownership and reporting lines that can withstand Treasury scrutiny and Parliamentary disclosure requirements. DAO 05/26 does not create a standalone charging code, but it does make clear that income policy, costing discipline and governance are now expected to work together. (gov.uk)