UK government’s love/hate relationship with consultancy firms
McKinsey, Accenture, EY, PwC: When it comes to calling in the consultants, the government has had leading firms on speed dial over the years. But with cost cuts on Rachel Reeves’s agenda, London’s army of government consultants could be getting the chop.
Before Labour took office, it pledged to halve consultancy spending from 2025-26, expecting to save over £1.2bn by 2026 by forcing Whitehall departments to present a complete case if they wanted external help.
The previous Conservative government was hooked on Big Four powerpoint presentations ,overseeing rocketing spending on these firms towards the end of its tenure.
Government spending on private consultants was 62 per cent higher in 2023-24 than in 2019-20, with £3.4bn blown on external help over that year, according to figures published in August by Outsourcing data company,Tussell.
In the same month, the Institute for Government (IFG) reported that £5.4bn worth of management consultancy contracts will come to an end over the last Parliament.
A significant amount of money was spent on consultants for the HS2 project, with some firms receiving substantial fees. The Big Four firms, including PwC, Deloitte, EY, and KPMG, received £102m, £86m, £25m, and £9m, respectively.
The Treasury revealed in July that it hit its target by saving £550m over 2024‑25 by stopping non-essential spending on consultancy. In the Spending Review earlier this month, Reeves revealed the government expects to save over £700m per year by 2028‑29.
But why have governments opted for expensive external help? The main reason is thought to be the lack of capacity and specialist knowledge within the civil service.
As much as 30 per cent of respondents stated that work needs to be delivered more quickly, while 25 per cent said Ministers are more likely to listen to external advice.
Fiona Czerniawska, CEO of Source Global Research, told CityAM, “We estimate that public sector consulting accounts for around 12 per cent of the UK consulting market.”
Small-mid tier to feel the cuts
However, Czerniawska pointed out that most large firms will therefore have sizeable public sector practices and are not dramatically exposed to a contraction in this space.
“Mid-sized and smaller firms are a different story: Some have specialised in public sector work and a significant cut back in public sector demand could be very damaging,” she added.
Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA), noted: “We acknowledge the financial constraints faced by the current administration and share the government’s commitment to achieving value for money and leveraging our sector to deliver exceptional public sector projects.”
The majority of public sector clients (80 per cent) surveyed by Source Global Research have received specific guidance on the use of external support since the arrival of the Labour government.
Of these, 64 per cent were instructed to reduce the fees being paid on existing projects, 61 per cent to use external support only when necessary, and 59 per cent to reduce the fees paid on future projects.
However, this comes as the report noted that an overwhelming majority of UK public sector clients expect to increase their use of consulting services over the next two years, with only 2 per cent expecting to reduce their investment.
“Governments over time have continued to spend on consulting in the face of cost-saving initiatives; this is because they discover that they lack the specialist skills and number of staff needed to deliver essential services,” Czerniawska said.
Just before the Treasury’s planned cuts came into play, last August, Big Four firm KPMG won a £223m government contract with the Cabinet Office to train civil servants.
“In an environment characterised by constrained budgets and rising expectations, consulting firms play a crucial role in transforming ambitious public service goals into practical and measurable outcomes,” Isacsson added.