Reeves vows to halve consultancy bill, but government can’t track its spending
Despite the government setting an ambitious target to halve overall spending on consultants, a new report suggests, the lack of consistent data hinders efforts to track progress toward spending targets.
Rachel Reeves has set targets to halve the UK government’s overall spending on consultants in 2025-26 and to save £550m in 2024-25, aiming for £700m in savings by 2028-29.
HM Treasury estimated that central government spending on consultants in 2022-23 was approximately £1.36bn, but other sources suggest the figure could be significantly higher.
In October 2024, the Treasury said it expected to deliver the £550m in-year savings target based on its forecast figures and planned departmental expenditure.
However, according to a new National Audit Office (NAO) report, the government lacks a clear, consistent picture of how much is being spent on consultants and how this expenditure has changed over time.
As a result of this inconsistency, efforts to track progress toward spending targets are hindered, preventing effective decision-making.
The NAO suggests that the data inconsistency is due to factors such as departments using different definitions of consultancy work and difficulties in classifying services when consultancy firms provide a package that includes both professional services and contingent labour.
The previous Conservative government withdrew centrally directed spending controls on consultants in an effort to cut departmental administrative workloads, resulting in the external bill ballooning, as fees swelled to an estimated £3.4bn between 2023 and 2024.
At the time, the departments were encouraged to develop their own internal controls on consultancy spending. But an NAO report found that this led to discrepancies in how stringently these controls were being applied.
Government told to maximise value
The Treasury seems fully focused on cutting external spending, with Reeves re-emphasising the aim in her pre-Budget speech earlier this month.
The NAO report noted that, when used effectively, consultants make a valuable contribution, as 86 per cent of respondents agreed consultants brought valuable contributions, especially when hired to solve specific problems using expertise the civil service lacks.
However, it noted that consultants should only be used where they represent the best value for money and not to replace the capability required within the civil service.
The NAO developed lessons for the government to maximise value, including engaging with suppliers, adding knowledge transfer agreements to contracts, and maintaining oversight of the work being done.
This comes as a significant amount of money was spent on consultants for the HS2 project, with some firms receiving substantial fees: PwC, Deloitte, EY, and KPMG each received £102m, £86m, £25m, and £9m, respectively.
One of the main reasons governments turn to expensive external help is the lack of capacity and specialist knowledge within the civil service.
Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA), told Morning Wire, “While the fiscal context remains tight, the public sector will continue to need the very best of private sector expertise to deliver better frontline services for taxpayers.”
“It is unrealistic to expect government to employ a vast pool of private sector experts and resources and far more cost-efficient to use them for short-term projects, helping improve the efficiency and delivery of critical national services,” she added.
Sir Geoffrey Clifton-Brown, chair of the Committee of Public Accounts (PAC), stated that “consultants can add value across a variety of workstreams….these are costly services, so it is
important that they are used appropriately.”
He noted that the NAO has set out a number of lessons to improve value for money from spending on consultants, including investing in and upskilling civil servants to reduce dependencies. He stated that “the PAC will be inquiring into this matter in the coming months.”
This comes as the government is currently cutting civil service jobs through a combination of efficiency drives, office closures, and a push to reduce administrative costs. Reeves set a goal to cut government running costs by 15 per cent by the end of the decade, which is expected to result in a reduction in headcount.
Commenting on the report, a Cabinet Office spokesperson said: “This government is committed to relentlessly rooting out waste, driving efficiency, and protecting taxpayers’ money. That includes reducing back office costs by 16 per cent to save £2.2bn a year by 2029-30 having already halved consultancy spending this year.”
“We are taking action to identify and improve data across government, including improving definitions and standards in commercial teams, and will be working at pace to go further,” they added.