The following is a transcript of a keynote speech given in Parliament by Gareth Davies, the head of NAO, to MPs and civil servants on 10 February 2026. You can also watch a recording of the speech.
Introduction
Good afternoon and thank you for that kind introduction, Sir Geoffrey, and for the continued close working between the Public Accounts Committee and the NAO in the interests of taxpayers. The PAC is the hardest working committee in Parliament and it’s a privilege to support its members in their work.
This is a critical time for those of us focused on getting better results for citizens from the available public resources. Too many public services remain difficult to use and expensive to deliver. Increasing geopolitical tensions, an ageing population and many other demand pressures against a background of historically high levels of taxation and borrowing make the task of improving value for money more important than ever.
I would argue that the need for independent, evidence-based auditing to support accountability and public trust has also never been greater.
In April last year we published a new five-year strategy to guide the NAO’s work. It puts trust, value and impact at the heart of everything we do.
Trust and value have been central to the NAO’s remit for its whole existence. But our strategy sets a new level of ambition for our impact. We want our work to help improve the productivity and resilience in public services and support better financial management and reporting in government. In short, we want to make a difference.
So today, I would like to:
- Briefly, reflect on progress against the five opportunities for better value for money that I set out two years ago.
- Focus on the critical and often underplayed role of financial management in improving results for taxpayers and service users, and why I believe that a step change is needed.
- And finally, I will look ahead to the rapidly changing risks and opportunities facing government and how the NAO can support government in responding to them, and Parliament in scrutinising that response.
Progress on the five VFM opportunities
Two years ago in this room, I identified five ways in which government could improve productivity and resilience. While our work shows that there continues to be much to do on each of these challenges, I want to acknowledge first that government has taken some positive steps.
Firstly, on so-called ‘mega-projects’, I welcome the new governance arrangements being implemented by the Treasury and NISTA based on recommendations from our report and the Office for Value for Money. These should help address the weaknesses in governance I described in 2024, and we will be looking closely at their implementation in new projects such as Sizewell C as well as progress on older ones where much remains to be completed including HS2 and MoD’s largest programmes.
On maintaining public assets, another welcome change is the 10-year infrastructure strategy, setting out planned investment in social and economic infrastructure with a pipeline of individual projects and crucially a balance of maintenance and new build. This is an important step in addressing the failures of asset management shown by our previous work on schools, hospitals and roads.
Our recent report on the reset New Hospitals Programme showed a more realistic approach to this vital programme, and the value of a clearer pipeline of work in engaging industry and securing healthy competition. The proof of the pudding is of course in the eating, and we will be reporting on progress in managing the cost and delivery risks and improving results for patients.
The Procurement Act passed by the previous government offers new flexibility in how the public sector buys from the private sector. This should help to tackle the problem we still see in too many public service outsourced markets of limited competition and poor performance. Where innovative solutions are needed, we are encouraging the civil service to take well-managed risks, and we will factor that risk appetite into our audit approach. Our 2025 guide to Managing the commercial lifecycle distils 20 years of NAO findings into practical improvements.
As we are seeing in other sectors, digital transformation offers huge opportunities to modernise the design and delivery of public services, making them easier to use and cheaper to deliver. Our work on digital programmes shows that real productivity gains can’t be achieved without fundamentally reviewing business processes and improving data quality. It was good to see the Bank of England successfully manage these and other big risks in renewing a critical system in our national payments infrastructure.
Government has now published its roadmap for modern digital government to 2030. Crucially this includes a focus on digital skills, from top to bottom. We will continue to support PAC in holding government’s feet to the fire on this.
My final point as I look back is on reducing fraud and tax evasion. The spending review settlements for DWP and HMRC for the next three years include specific investments in this area. Encouragingly, having spiked during the pandemic, the percentage of Universal Credit overpaid due to fraud and error reduced in 24-25 and DWP’s plan is to bring it down to its lowest level in many years by 2029.
Counter fraud work is a dynamic field as new technology is exploited by both fraudsters and those working to stop them and we will continue to support PAC in focusing on this area, as it did last month with its inquiry into the use of data analytics in tackling fraud.
So, I take encouragement from the progress made in the last two years, whilst recognising how much there is to do to convert all this activity into better results for taxpayers and service users.
Better financial management
I now want to turn to my main focus today – the step change in financial management that I believe can help to unlock the improvements in value for money we all seek.
Government has set a new framework for delivering 5% savings and efficiencies over the next three years, publishing each department’s plan for efficiencies in the spending review settlement. The Treasury and Cabinet Office have also set out a new approach to the public spending control and accountability framework, aimed at reducing micromanagement from the centre and strengthening accountability for those responsible for delivery. Both of these developments were informed by the work of the Office for Value for Money, led by David Goldstone, which has played a valuable role in focusing attention on systemic improvement.
Now that it has completed its work, I look forward to continuing to engage with the Treasury and Cabinet Office as they implement the reforms and to help them identify further systemic issues requiring action across government.
To make the most of the opportunity provided by these changes, I think that a renewed focus on the fundamentals of good financial management is needed. Whilst these will sound familiar, our work shows that without concerted attention, we won’t see the better results for taxpayers. Good financial management is often the difference between failure and success.
I hope it is no surprise that I start with timely and accurate financial reporting. After all, this is the first responsibility for Accounting Officers as the heads of each government department and public body. Overall, this is taken seriously and done well. It is genuinely impressive that high-quality audited accounts of Departments responsible for billions of transactions and hundreds of billions of pounds a year, such as DWP and HMRC, are published within three or four months of the year end.
It’s also important to note that the UK is a leader in accounting for public expenditure, having applied International Financial Reporting Standards to government accounts since 2009, and compiled Whole of Government Accounts from the same year. Some other developed countries, including in Europe, still account for public spending on a cash basis. This severely limits their scrutiny of taxpayer liabilities, and very few are able to account for all public spending in one set of accounts.
So it is against this overall positive picture that we have recently published a new report, Audit Insights, setting out government’s performance in financial reporting and highlighting where we can still improve. I’d pick out a couple of key points:
The first is that not all departments and public bodies yet match the best for timely and high-quality accounts. All Departments and the majority of public bodies should be publishing audited accounts by the summer Parliamentary recess in July and all public bodies by the end of October each year. This is a shared challenge for public bodies and the NAO as their auditor, and we commit to playing our part. We will publish comparative performance on this each year from now on.
If you are in any doubt that timely and robust accounting matters in the public sector, the situation in English local government remains a cautionary tale. In many cases, backlogs of unaudited accounts going back several years are only being cleared by means of disclaimed audit opinions, so that we have no independent assurance about how local government spent billions of pounds of public money.
Not only does this mean that a material part of the whole of government accounts is not assured, but also that local taxpayers are not getting the most basic form of financial accountability. I welcome the legislation to put the local audit regime on a sound footing once again and we will work with the new Local Audit Office to help it do that.
The second theme from our Audit Insights report I’d highlight is ensuring that reporting requirements are serving their purpose of clear accountability and not becoming an end in their own right.
Last year we reported on the need for change in the accounting requirements for the smallest public bodies. We found that the build-up of detailed disclosures and compliance reporting is in danger of overwhelming small finance teams and obscuring the important aspects of their financial performance. I look forward to seeing tangible progress in making financial reporting proportionate for smaller bodies. Again, we have our part to play as auditors and have committed to do so.
And because I like to challenge the notion that auditors only know how to criticise, it’s good to highlight examples of high-quality reporting. In November last year, I was pleased to present an award to the Met Office for its 2024-25 annual report and accounts. It’s a great example of clear and concise explanation, with the reader firmly in mind.
My next fundamental is the right financial management information. I think government has a bigger challenge here.
Soon after the spending review announcement, we published a report called Improving government’s productivity through better cost information. It showed that managers often don’t have access to the activity cost information they need to drive efficiency and performance. Government systems are too often set up to control spending within budgets, not to help managers manage.
If the unit cost of delivery, and the components making it up, aren’t well understood, it’s difficult to make good operational decisions. How do you know where the biggest ‘bang for the buck’ is? How can you identify the efficiencies available in every department?
This was also the theme of our report on the management of fees and charges for public services. We found that because costs were not well-understood, policies that require fees to be set at a level that would cover the cost of the service are routinely being breached. The effect of this is to transfer unplanned cost burdens to taxpayers and to reduce pressure on the department to manage costs.
My third financial management fundamental is the skills and capability needed to inform decision making. I am deliberately raising this now as almost all departments are making workforce changes as part of their departmental efficiency plans announced at the Spending Review.
I spoke earlier about the necessary focus in government on increasing the level of specialist digital skills in the workforce. In my view there is an equally important need to focus on specialist financial skills.
We work closely with the Government Finance Function and there are many talented and skilled finance professionals in the civil service. The Function’s own strategy addresses many of the issues I’m covering here. The challenge of transforming services and business processes and delivering real efficiency improvements requires more rather than less of these high-level skills. It’s not a question of headcount, but of expertise.
Cost structures are already changing as the technology being deployed changes. What used to be periodic capital investments in new software have now become annual licence costs for cloud-based services and a call on the resource budget. Who is ensuring that all these Co-Pilot licences are starting to deliver the productivity gains expected to set against the additional cost?
We see significant scope for better integrating expert financial advice into the decision-making process and we will continue to work with the Government Finance Function to share good practice. There are great examples of departments getting this right. For example, within the Border Change Delivery Unit at HMRC, we saw how finance teams partner the business to great effect – coaching and upskilling budget holders and building accountability for financial management across the business. The result there is better planning and forecasting and better operational decisions.
My final fundamental is the leadership and culture to drive better financial management. This is the hearts and minds part of any change, with a clear tone from the top and a credible narrative on the achievements made possible by a better grip on the money. Financial management is not just about compliance; it’s how better results are delivered.
You may be thinking this sounds worthy, but what difference can it make to results for citizens? A recent example from our work shows what can be achieved when these financial management fundamentals come together. In 2020 I qualified my opinion on the Environment Agency’s annual accounts because it could not support the valuation of its flood defence assets with adequate data on the condition of the assets. New leadership made addressing this a high priority and has systematically overhauled the data on flood defences, providing managers with meaningful information on asset condition to inform maintenance plans. I was pleased to give a clean opinion on the Agency’s 2024-25 accounts last year.
Not only are the accounts more accurate, but even more importantly, the finite resources available for flood defences are being targeted more efficiently. In turn, this means more people, homes and businesses protected from flooding. Especially at this time of exceptional rainfall in parts of the country, I can’t think of a better example of why good financial management matters.
Our five financial management Good Practice Guides build on these fundamentals and provide practical help. I commend the guides to Boards and management teams across public services and ask you to use them to tune up or create your financial management capability.
Looking ahead
Finally, I’d like to illustrate the importance of better financial management through the lens of some of the urgent challenges facing government in the coming years. There are of course many of these, but I will focus on three:
- defence spending;
- AI; and
- system-wide improvement, including devolution.
The spending review sets a course for increased defence spending and with rapidly changing security risks, the Defence Investment Plan is eagerly awaited. Defence has long been a significant part of the NAO’s work and will remain so. Our defence value for money reports show painfully clearly that without robust financial management, additional funding will not deliver the capability we need.
We will be looking for evidence that the lessons from Ukraine and the changing global risk profile are being successfully applied to our own strategy and capability. And that the whole programme has been robustly costed and funded so that Parliament can hold the Ministry of Defence to account for delivering it.
On AI, we will update our previous work on government’s progress in identifying use cases for AI and whether the expected benefits in efficiency and service quality are being realised. Departments are identifying some promising results. In our report on police productivity, we highlighted how the use of AI-enabled tools for redacting sensitive information from videos, CCTV and audio recordings had saved significant time for police officers – with the potential to save about 11,000 days a month if adopted nationally.
Of course, we are also seeing plenty of evidence that AI comes with risks to accuracy which must be managed if public trust is to be secured. We will take a pro-innovation approach to our work, recognising that not all investments will pay off, and helping build the evidence base for high value interventions.
And finally, system-wide improvement, including devolution. Some of government’s biggest challenges can’t be solved by one department. Our recent work on the end-to-end asylum system showed how an understanding of whole systems is essential to solving problems efficiently across multiple organisations. Too many interventions merely transfer cost to another part of the system with no benefit to the taxpayer. We will continue to use whole-system analysis where it can add value.
Government is also clear that it sees better results for citizens as a national and local endeavour and is shifting resources from the centre to regions and localities. We will support Parliament in understanding how well the devolved funding system is working, noting that this adds urgency to the work on local audit improvement I mentioned earlier. The financial management skills required at a national and local level will need to develop as the system changes.
Summing up
So, summing up, it has never been more important to ensure that every penny of public money is achieving the maximum possible for the security of our country and the prosperity and quality of life of our fellow citizens.
In order to take the opportunities available and manage changing risks, government will need to see through its structural and governance reforms, improve digital and financial skills, and modernise services so that they are easier to use and cost-effective.
The NAO will seek to make the biggest possible contribution to better value and increased trust, and I look forward to continuing to support Parliament in holding government to account for delivering.
Thank you for listening.
Watch the speech
Author
Gareth Davies
Gareth Davies was appointed C&AG in June 2019. Before his appointment as C&AG, he was Head of Public Services at Mazars, a global accountancy firm specialising in audit, tax and advisory services. Prior to this, he was Managing Director of the Audit Commission’s Audit Practice. His experience spans financial and value for money audit, organisational leadership and board governance.
Gareth is a Fellow of the Chartered Institute of Public Finance and Accountancy and a Fellow of the Institute of Chartered Accountants in England and Wales. He is a non-executive Board member of the INTOSAI Development Initiative (IDI) which supports Supreme Audit Institutions in developing countries to sustainably enhance their performance and capacity.
