After shooting up by almost half during the emergency procurement provisions of the pandemic, the amount spent by public bodies on external consultants has risen further still, Tussell data shows
Public spending on consultancy has yet to fall to pre-Covid levels, according to new analysis that shows public bodies paid £3.4bn to consultants last year.
Consultancy expenditure has climbed 57% over the last five years – up £1.3bn since 2019-20, when it was £2.1bn – analysis by procurement data company Tussell shows.
The latest figure is higher than in 2020-21 – the year that saw a surge in consultancy spending under emergency regulations that meant government bodies were able to award contracts outside the usual tender process to aid the pandemic response – when spending stood at £3bn. In 2021-22 public spending on consultancies totalled £3.4bn, before dipping slightly to £3bn the following year.
Central government has spent more on private consultants than the rest of the public sector combined in each of the last five years covered by Tussell’s latest Public Sector Management Consultancy Market report. Last year, it accounted for 58% of the figure, with local government accounting for 17%, and the NHS 15%. The remainder was spent on transport, blue-light and other services.
The Department for Energy Security and Net Zero was the biggest central-government spender, with £339m of its budget spent on consulting. HM Revenue and Customs is next on the list, at £286m, followed by the Home Office, at £278m.
The others making up the top-spending departments were: the Ministry of Defence and the Department for Transport, which both spent north of £220m on consultancy last year, and the Department for Work and Pensions and the Department for Education, which both spent upwards of £110m.
Together, these seven buyers were responsible for more than 45% of government’s management-consultancy procurement spending, which Tussell identified using company data from Companies House and manual analysis of procurement data.
“Cutting spending at just these top seven departments could radically impact overall consultancy costs,” the report notes.
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Meanwhile, just seven suppliers accounted for 40% of the total sum. Deloitte was the biggest recipient of consultancy spending, taking £344m, followed by PA (£247m), Accenture (£240m) and KPMG (£228m). EY, PwC and Equal Experts round out the list, each claiming between £103m and £170m.
The Labour government has pledged to halve government consultancy spending. In July, chancellor Rachel Reeves instructed departments to immediately end all non-essential spending on consultants as part of an effort to cut costs, along with shaving 2% off their “back-office costs”.
But Tussell’s figures show the government is likely to face an uphill battle if it is to meet this manifesto goal. Nearly £1bn worth of management-consultancy contracts are due to expire between October and December, the figures show.
And more than £3.4bn worth of consulting contracts will end between Q4 of 2024 and Q1 of 2026. “This means that even if the public sector cuts down on new contracts today, billions will still need to be spent to honour existing contracts in the coming years,” the snapshot says.
Labour’s pledge is the latest in a long line of drives to curb spending on consultants. In 2020, officials drew up plans for an in-house consulting hub that was to replace some of the work of outsourcers. In May 2021, the Cabinet Office announced that it would create a 60-person Government Consulting Hub as a “centre of expertise” for management consultancy.
However, the hub was closed at the start of 2023, and a requirement for government bodies to secure Cabinet Office approval for contracts with a duration of more than nine months or costs exceeding £600,000 was also dropped. Then-Cabinet Office permanent secretary Sir Alex Chisholm said earlier this year that running the so-called Crown Consultancy in house had proved “too difficult”.
Commenting on the figures in its report, the Tussell analysis says: “Consultants have become integral to everyday government operations, and are often the go-to solution when addressing new challenges and controversies.”
“It remains to be seen how much the new Labour government will cut consultancy spending. Our analysis shows that even a small reduction would save tens of millions of pounds – but the scale of spending also shows just how deeply embedded the industry is in the public sector,” it adds.
Responding to the report, Tamzen Isacsson, chief executive of the Management Consultancies Association, said MCA members “support government’s ambitions to improve public sector productivity and innovation, enabling them to do more with less, using specialist expertise and world class capabilities”.
She added that it is “far more cost efficient” to use private sector expertise for short-term projects than to bring all the skills it needs in house. “We stand ready to serve the next government in power and recognise the financial constraints the new administration faces,” she said.
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