Government consulting bill still £1 billion above pre-pandemic levels

Amid the general election campaign, the Labour Party outlined plans to cut the government’s consulting bill by billions of pounds. But a new study suggests that the new government may have its work cut out, if it wants to meaningfully decrease the 57% increase in government spending on consulting services since 2019.

The UK’s consulting market is estimated at bringing in annual revenues of over £20 billion – having enjoyed rapid growth over the past decade, in spite of headwinds which have impacted the wider economy. It’s second largest client base is the public sector – with government contracts having driven between one-fifth and one-quarter of consultancies’ incomes in recent years.

With the UK’s civil service having been left in a weakened state by a decade of austerity cuts, the state was faced with a succession of systemic challenges – from the protracted Brexit process, to the Covid-19 pandemic. In this context, the government regularly sought to plug skills-gaps with knowhow from the consulting sector – something officials argued was better value for money than permanent appointments.

However, with a rising spend on consultants representing an increasingly unpopular transfer of public funds into private hands, and a growing chorus of voices suggesting the habit was preventing the civil service from rebuilding its strength in the long-term, both major parties opted for a change of tack during the 2024 election. This saw Keir Starmer’s Labour Party pledge to reduce government spending on consultants by £3.73 billion over five years.

These savings, which would provide much-needed cash to be reallocated in the new government’s current re-balancing of the nation’s books, would be an annual sum of £745 million. According to a new study from Tussell, however, that would still not take government spending on consultants back to pre-pandemic rates.

In the last financial year, the previous government spent £3.4 billion on management consulting suppliers, Tussell finds. Reducing this by £745 million would place the annual bill back at £2.65 billion – still more than £500 million more than the government spent on external expertise in the financial year beginning in 2019.

Breaking down the figures, however, Tussell also found that the vast majority of public spending on consultants came from the central government. In the financial year beginning in 2023, that portion stood at 58%, while local government was the next largest portion, on a distant 17%. That presents a lot of room to work within, if the Labour administration wants to push ahead on reducing consulting spending further.

In particular, the top seven buyers within central government accounted for over 45% of management consultancy procurement spending. The largest of these was the Department for Energy Security and Net Zero, which is currently spending £339 million on a contract with Deloitte; along with HMRC, spending £286 million on an engagement with PA Consulting; and the Home Office, which has engagements with Accenture worth a reported £240 million. Other contracts worth more than £100 million each included engagements with KPMG, EY, PwC and Equal Experts.

This led Tussell to add that, “Cutting spending at just these top seven departments could radically impact overall consultancy costs.”

At the same time, the changes might offer an opportunity to diversify the list of suppliers the government operates consulting agreements with. At present, Tussell found that the top seven largest consultancy suppliers in the market accounted for over 40% of total management consultancy procurement spending.

With almost £1 billion in management consultancy contracts due to expire in the fourth quarter of 2024, there are clear chances for Chancellor Rachel Reeves to find ways to reduce public sector spending on external management consultancies. However, there are over £3.4 billion worth of management consultancy contracts which will roll off by the end of 2026 – showing billions more will still be spent in spite of the change in government, and in policy. And with new contracts – including a large £223 million contract with KPMG having been agreed by the previous government – still being honoured, this will be an uphill struggle.

In line with this, the researchers concluded that due to “the scale of spending” and “just how deeply embedded the industry is in the public sector”, “it remains to be seen how much the new Labour government will cut consultancy spending”.