An IfG study has flagged up a number of potential measures that could help the public sector reduce the hundreds of billions of pounds it spends each year with suppliers
The Institute for Government has urged ministers to seek new savings from the public sector’s near-£400bn annual procurement spending by ditching under-performing contracts and boosting competition.
A report from the think tank, produced in conjunction with consultancy Tussell and bid-writing engine AutogenAI, argues that billions of pounds could be saved by halting the automatic renewal of management consultancy and IT contracts – alongside other measures.
The report says £388bn was spent on procurement in 2022-23, almost one-third of all government spending. Of the total outlay on procurement, two-thirds came from central government, with local government making up the remainder.
According to the IfG, the three departments that spent the most on procurement in 2023-24 were the Department of Health and Social Care, the Ministry of Defence and the Department for Transport.
DHSC’s £98bn spend accounted for around half of its total budget. The MoD spent £36bn and DfT £25bn – 78% of its annual budget.
The Improving Accountability in Government Procurement report says that IT and management consultancy contracts worth £5.4bn are due to end during the current parliament and that insourcing them would be “a key way” to reduce government procurement costs. It says not renewing those contracts would both save money and aid realisation of a Labour Party pledge to “halve consultancy spending” that was made last year.
The IfG said IT services contracts worth £23.4bn could also expire over the period – including the longstanding Post Office contract with Fujitsu to deliver the faulty Horizon IT system.
Report authors Nick Davies and Ben Paxton said that while the new government had not explicitly identified insourcing IT contracts as a goal, parts of government had a successful track record of doing so, including the Driver and Vehicle Licensing Agency. They said the DVLA had saved more than £60m and improved the quality of its services with a two-year programme of IT insourcing.
Among the problems of government procurement, the IfG says poor-performing businesses are “virtually never” excluded, while “large numbers” of contracts with a combined value of billions of pounds are overseen by officials who are not commercial specialists.
The report adds that poor data means government does not know how much it is spending and with whom, while new providers who could deliver better services for less money are discouraged from bidding for business.
It proposes new transparency requirements as a way to drive improvement, with civil service leaders being held to account for departments publishing high-quality data.
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Another recommendation is that the Cabinet Office should conduct targeted reviews into the underperforming suppliers the public sector is most exposed to, clarifying how they could be feasibly stopped from bidding for contracts in the future.
A further call urges the new government’s Mission Delivery Unit to work with with the government commercial function to develop guidance on how prime minister Keir Starmer’s five missions should be reflected in contracts.
The report authors also say the commercial function should set out more details on the additional resourcing required to strengthen the commercial profession – and support an expectation that all staff managing contracts are commercial specialists.
IfG programme director Davies said the door was open for the PM and his cabinet to shake up procurement to the betterment of the public finances.
“The new government has an opportunity for a step-change in how it holds suppliers and the public sector to account,” he said. “Procurement makes up almost a third of all government spending. Given the difficult fiscal inheritance the government is facing, getting accountability in procurement right should be central to delivering mission-led government.”
A government spokesperson said action was being taken to stop all non-essential government consultancy spending in 2024-25 and halve government spending on consultancy in future years, with a target saving of £550m this financial year and £680m in 2025-26.
“This government will publish a new National Procurement Policy Statement in February, to harness the billions of pounds spent by public sector organisations each year and ensure commercial activity, and what we expect from our suppliers align with our missions,” they said.
The spokesperson added that the government would use the Procurement Act 2023 to deliver greater value for money and improved social value – at the same time as opening up procurement to new entrants.
They said the Missions Delivery Unit would work across government to ensure procurement activity aligns with wider government missions, not just against departmental priorities.
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