Consultants to lose £3bn of UK government work under plan to halve advisory spend

Consulting firms risk losing billions of pounds of lucrative government work after the Conservatives and Labour both pledged to halve UK government spending on external advisory firms.

The two main parties made manifesto commitments this week to cut their reliance on consultants over the next parliament, a move expected to save around £3bn over five years.

Government use of consultants has risen to record levels since the last election, driven by demand for emergency schemes during the Covid-19 pandemic, as well as digital transformation projects and civil service training.

Eight companies — Deloitte, EY, KPMG, PwC, McKinsey, BCG, Bain and Accenture — have between them been awarded £7.1bn of public sector contracts since December 2019, according to figures from Tussell, a data group.

Critics, including Parliament’s public accounts committee, warn that the government’s reliance on consultants wastes money and prevents the UK’s civil service developing valuable skills in-house.

Lord Theodore Agnew, a then-UK government minister, said in 2020 that an “unacceptable” over-reliance on advisers wastes taxpayer money and “infantilises” the civil service.

This week, Labour leader Sir Keir Starmer and Prime Minister Rishi Sunak pledged to slash spending on consultants as they sought to find cash to fund their manifesto commitments against an uncertain economic backdrop.  

Labour, which is far ahead in the polls, estimated it would save £745mn a year — or £3.73bn over five years — by halving spending on consultants, which it said would be reallocated to “prioritising frontline public service delivery and public sector capability”.

Calculations by the cabinet office, commissioned by the Conservatives, forecast that Labour’s move would create net savings of £3.04bn by the end of 2029.

The Conservative party also said it would halve spending on external advisers, introduce controls on all equality, diversity and inclusion initiatives and spending.

The party in addition wants to return the civil service to its pre-pandemic size, which would mean axing nearly 90,000 roles, according to the Institute for Government.

“You can be more economic and say you’ll save £3bn by cutting consultants, but you’ve got to replace them with [civil servants],” said one veteran public sector consultant at a global advisory firm.    

“You might see that as more efficient but what it isn’t is more effective. You would massively cut productivity, performance and effectiveness.”

The UK government has previously made efforts to reduce the use of advisers in Whitehall, including the creation of an in-house consultancy arm during the last parliament.

Backed by former Downing Street adviser Dominic Cummings, the “Crown Consultancy” was supposed to cut government spending on private sector firms. However, the project was scrapped last year after officials admitted it “didn’t work” and that departments preferred to use external advisers.

High spending since the last election has been a boon to consulting firms, with Deloitte awarded contracts worth £1.9bn during the period, Tussell data showed. Its Big Four rivals KPMG, EY and PwC won £1.3bn, £1.03bn and £1bn, respectively.

Actual spending is usually lower than the value of contracts awarded because many projects run over several years and because Tussell’s data sometimes include contracts for projects such as IT upgrades, which the government does not classify as consultancy spending.

The consulting industry argues that bringing in advisory firms for short-term projects through competitive tenders is more cost-effective than employing specialists in government departments full time.

“The next government will face a complex series of challenges on an unprecedented scale and we believe it will continue to need the very best of private sector expertise to deliver better frontline services for taxpayers,” said Tamzen Isacsson, chief executive of the Management Consultancies Association.