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Large consultancies won £1.5bn worth of UK government contracts in 2024, an increase on £1.4bn in 2023 and £1bn in 2022 according to data from Tussell, even as Whitehall insists it is on track with the government’s pledge to cut spending on external advisers.
Last July the Labour government said it would stop all non-essential consultancy contracts during the current financial year, as part of its bid to demonstrate greater control over public finances.
A UK government spokesperson insists officials are “on track” with the plan to save £550mn in 2024-25, and says they are “focused on rooting out wasteful spending and driving efficiency across government”.
Plans to halve consultancy spending by 2026 will save the taxpayer £1.2bn, chancellor Rachel Reeves has said. Civil servants have been told that all major new Whitehall consultancy contracts must be signed off by a department’s most senior official or the relevant cabinet minister.
But the latest figures from Tussell, a data group, show Whitehall’s continued reliance on the sector.
In the first two quarters of 2024, some of the biggest firms between them secured 348 contracts worth almost £638mn. This group includes the Big Four firms Deloitte, PwC, EY and KPMG, as well as McKinsey & Company, Boston Consulting Group, Bain and PA Consulting.
Between July and December, this group secured 262 contracts worth £837mn. This compares with 352 contracts worth almost £620mn in the second half of 2023, and 376 worth £478mn in the second half of 2022.
Responding to the latest Tussell data, government officials say the awarded figures represent a maximum spend over a time period, and not money spent. Spending is usually lower than the value of contracts awarded because many projects run over several years. Tussell’s data may include contracts for projects that fall under wider public sector spending, over which ministers have no oversight and which are not classified as consultancy by the government.
“It’s really hard to get your arms around all this and know if the government is on track because there are often disputes about the data,” says Alex Thomas, programme director at the Institute for Government think-tank.
“If the government is serious about pursuing their objectives of reducing spending they need the data to be clear and accurate.”
MPs have warned that a reliance on consultants wastes money and prevents the UK’s civil service developing valuable skills in-house.
Eight companies — Deloitte, EY, KPMG, PwC, McKinsey, BCG, Bain and Accenture — have between them been awarded £8.56bn of public sector contracts since December 2019, according to Tussell.
“It is early days still and one of the big tests will be when some of the major contracts come to an end and if they will renew them”, says Thomas. “The civil service does lack certain skills and it will take time to build up these skills.”
“Targets and approval limits that are too arbitrary risk being counterproductive in terms of the government trying to achieve the things it says”, he adds. “It will have to work with external contractors in all sorts of ways to make things happen.”
The sector continues to defend itself amid the clampdown, arguing that private sector expertise is often needed given headcount constraints and the fact the government can lack capacity or specialist knowledge to deliver on certain taxpayer-funded projects.
“It is unrealistic to expect the government to employ a vast pool of private sector experts and resources and far more cost-efficient to use them for short-term projects, helping improve the efficiency and delivery of critical national services”, notes Tamzen Isacsson, chief executive of the Management Consultancies Association, a trade body.
Meeting the government target is not without its challenges. Last month a select committee of MPs questioned whether the new Office for Value for Money, which will play a role in overseeing the reduction in consultancy spend, itself represents good value for money for taxpayers.
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The cost-saving unit was set up by Reeves to ensure sensible spending decisions. However, the Treasury select committee concluded last month that it lacked resources and had a short lifespan.
The impact on the industry following the UK chancellor’s announcement is already being felt across the sector, according to a survey of UK public sector clients by consulting industry specialist Source Global Research.
Eighty-eight per cent of those surveyed said they had been given specific guidance about the use of external support since the arrival of the new Labour government. Of these, 64 per cent have been told to reduce the fees being paid on existing projects, while 61 per cent have been told to use external support only when essential, and 59 per cent asked to reduce the fees paid on future projects.
However, 96 per cent of clients expect to increase their use of consultants, with only 2 per cent expecting to cut their investment in these services. The survey found demand for consulting work is being driven by a need for capacity support.
Among the reasons cited by public sector clients was the need to get work done more quickly and the belief that ministers are generally more likely to listen to external advice.
