The House of Commons’ Public Accounts Committee has questioned the ability of the Ministry of Justice to comprehend the impact of the 23% cuts set to be made to its budget, given its history of ‘poor’ financial management.

At a committee meeting on Tuesday, MPs grilled the MoJ’s permanent secretary, Suma Chakrabarti, on the failings identified in a National Audit Office report published in July.

That report found the MoJ lacked understanding of the costs of its policy proposals, and did not understand in sufficient detail the costs of its activities in prisons, the probation service and the courts.

Committee chair Margaret Hodge (pictured) said the observations in the report were ‘pretty shocking’, and demonstrated that the MoJ’s financial management of its current £8.9bn budget is ‘poor’.

Hodge said that if the ministry did not understand its underlying costs, then the cost reductions stemming from the spending review would be service cuts rather than value-for-money savings. She added that there could be unintended consequences that actually increased costs.

‘The report says you won’t have a complete understanding of your costs until 2012. How can you understand the implications of a 23% cut to your budget?’ asked Hodge.

Chakrabarti said the NAO’s report was based on data from 2008/09 and the MoJ had made significant improvements since then, including introducing a corporate finance modelling unit to work out the cost of policies and the financial implications of policy changes.

However, he admitted that the department still has a ‘fair way to go’.