Brexit department picks McKinsey for £1.9 million consulting contract

06 November 2017

McKinsey & Company has been revealed as the consultancy to have successfully obtained a sought after government tender for the implementation of nearly 800 Brexit-related plans. The contract helps further paper the cracks at Whitehall, following the extensive streamlining of the British Civil Service in recent years, while the future hiring of some 5,000 staff is likely to further boost operations ahead of 2019’s deadline for negotiations with Brussels.

In the wake of Conservative Prime Minister Theresa May’s decision to trigger Article 50 at the end of March, the Department for Exiting the EU (Dexeu) launched what was reported as a £1.5 million tender for a management consulting firm able to oversee strategic Brexit-related activities over the next six months, handling as many as 792 related plans.

Britain’s civil service, which had seen its headcount depleted by roughly 25% in under a decade, due to governmental austerity plans, was found to be severely stretched by the current demands of Britain’s lengthy separation from the EU – with the government courting a number of high profile professional services firms for outside support. 

David Davis at EU commission negotiations

Contenders reportedly included Big Four firms KPMG, EY and PwC, while Deloitte ruled themselves out of the running for any governmental contracts at the time, following a leaked memo disparaging the government’s Brexit strategy, which caused Theresa May’s office to release an unprecedented attack on the firm, claiming the firm was “touting for business” through “unsolicited” analysis.

Following the hunt for expertise in the Spring, news has finally emerged that the UK’s Department of Exiting the European Union awarded the lucrative contract, the value of which is now speculated as being £1.9 million, to consulting giant McKinsey, to help it coordinate the government’s approach to Brexit, according to people familiar with the matter. While the contract was only formally announced in an email Friday, an accompanying excel sheet shows that the consultancy giant was hired on April 24, less than a month after the Prime Minister invoked Article 50 of the Lisbon Treaty, setting the country on course for two years of negotiations to leave the bloc of 28 EU countries.

The announcement has provoked strong criticism from opposition politicians, following increased public scrutiny of public spending on private consulting contracts, including a Parliamentary investigation into Whitehall’s ill-fated dealings with PA Consulting. Speaking on the McKinsey deal, Labour's Chris Bryant MP, a supporter of the Open Britain group, said, “Taxpayers’ money is being spent to support the Government’s extreme and damaging Brexit plans. But they could hire all the consultants in the world – their plan still wouldn’t work.”

Refilling Whitehall

The hiring of McKinsey comes after a period in which Conservative ministers have been single-minded in their efforts to slim down Whitehall departments in the name of a more efficient government. However, the streamlining of Whitehall left the government drastically understaffed when the unexpected workload of Brexit emerged following a shock referendum result in 2016. Dexeu has since struggled to hire and retain talent, since taking the drastic measure of hiring an extra 3,000 civil servants, while expecting to employ a further 5,000 next year in order to cope with the demands of leaving the European Union.

The workers taken on next year will be employed by HM Revenue and Customs as the body looks to implement a new border regime on leaving the bloc. Brexit Secretary and Dexeu lead David Davis told colleagues in the Cabinet last week, “Alongside the negotiations in Brussels, it is crucial that we are putting our own domestic preparations in place so that we are ready at the point that we leave the EU.”


UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”