At long last, the relentless outsourcing of critical public sector tasks to management consultancies in the UK looks set to come to an end.
In her first speech to the House of Commons, the Chancellor Rachel Reeves committed to “reining in” consultancy spending in government departments. The announcement follows an election campaign that saw both major parties pledge to reduce the public sector’s dependence on external firms.
This is a significant development. Between 2019 and 2023, spending on management consultancies in the UK government mushroomed. The UK public sector awarded £2.8bn of consulting contracts in 2022 – a 75 per cent increase on 2019. Large multinational firms emerged as clear winners of the public sector consulting boom, with eight of the largest companies – including Deloitte, PwC and McKinsey – awarded £7.1 billion in contracts since December 2019. The Covid-19 pandemic was a boon for these consulting firms, as ministries and the health service turned to them for help with the development of the test and trace programme and the procurement of personal protective equipment, among other critical tasks.
The case against government-by-consultancy is by now clear. As detailed in The Big Con, reliance on consultancies for delivering services has not only proved costly to the public purse, it has also undermined the capacity of public sector institutions and services to meet the needs of citizens and be able to adapt that capacity in response to the evolving nature of policy challenges over time. The less the public sector does itself, the less it is able to learn-by-doing. As the Conservative peer Lord Theodore Agnew put it in the summer of 2020, a reliance on consultancies has “infantilised” government.
The use of consultancies can also have the effect of distorting normal channels of accountability; decision-making processes become influenced and obfuscated by the advice by firms that often themselves have a conflict of interest in government policy. The Australian public have learned this the hard way, as a lengthy government inquiry has investigated how consultants advising the government on tax reform were able to share insider information with corporate clients.
For all these reasons, the Labour government’s promise to reduce the consulting industry’s share of the public sector pie is welcome. But if Labour fails to also invest in rebuilding and renewing government institutions and services, the positive impact of the commitment will be limited.
There is every reason to be concerned that this is exactly what will happen. The announcement to “stop all non-essential spending on consultancy” arrived as part of a swathe of measures aiming to “reduce pressure on public finances” following the discovery of a £22bn “black hole” in government spending. While renewing her government’s pledge to increase pay of some public sector employees, such as junior doctors, Reeves also committed to cutting departmental budgets by 2 per cent. The new Office of Value for Money will be established with a remit to identify areas where we can reduce or stop spending, or improve its value.
At a time when Britain and the world face enormous economic, social, health and ecological challenges, cutting spending on consultancies without transforming the wider public sector jeopardises any attempt to achieve the “missions” the new Labour government has also committed to, from making Britain a clean energy superpower to building an NHS fit for the future. These ambitious policies will take time, and they will not be realised without critical and consistent support for developing capabilities – and the people who make them. The decimation of public sector capacity can itself drive further dependence on consultancies, with evidence suggesting that the more public services use management consultancies, the more their demand for them increases.
Rebuilding and renewing government requires that departments and their civil servants are empowered to take risks and learn, and to actively engage with the citizens who use their services – as evidence from Camden council, Government Digital Services, and public sector organisations around the world attest. We know that these things only become more challenging under the constant threat of further budget cuts. A culture of risk aversiveness in the public sector can paradoxically create pressure to outsource as a means of shifting blame for potential perceived failures.
Where government bodies use external advice or capacity in future, they must be more selective about who they work with. Does the consulting firm really have knowledge that will leave the civil service better off? What conflicting interests is it bringing to the table, and can these be meaningfully mitigated? Might other organisations beyond what we usually consider part of the “consulting industry” be better placed to drive change and find solutions? The public sector must also be savvier about how it works with external organisations – including through contracts that ensure the learning that takes place can be captured and harnessed internally.
The consulting industry has not only benefited from a reduced state since the 1980s, it has actively championed an approach to public finances that focuses narrowly on the short-term, and an approach to public administration that promotes risk-aversion among public sector employees. In this way, reducing spending on consultancies is only part of ending the consultancy cult. Achieving Labour’s missions – and the transformation of our economy and welfare services more generally – demands that we break free from this ideology.
[See also: Life after capitalism]
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