Why Labour can’t kick Whitehall’s consultancy habit
Since coming to power, Labour has been vocal about cutting spending on external consultants to save taxpayers money. However, data suggests it has actually moved in the opposite direction, as the private sector shows it is a necessity and not a luxury, writes Maria Ward-Brennan.
The pledge to cut back on external consultants was first announced at the Labour Party Conference in October 2023. Speaking then as shadow chancellor, Rachel Reeves promised that a Labour government would “slash government consultancy spending, which has almost quadrupled in just six years.”
Following her initial statement, the government unveiled plans for greater procurement control in November 2024, rolling out a framework to save £1.2bn by 2026 by freezing non-essential consultancy hires and targeting a 50 per cent spend reduction in the years to follow.
Reeves was not wrong: the previous government loved calling in consultants. According to data from Tussell, spending on direct management consultancy in 2020/21, the first year of the Covid pandemic, surged by over 30 per cent from the previous year, reaching £2.7bn.
But the Tories weren’t alone in picking up the phone to the private sector; despite Reeves’ pledge to cut its own bill on external help, Labour government spending on public sector management consultancy procurement actually rose to £3.7bn for 2024/25, according to Tussel. For the central government alone, the bill rose by over £150m in Labour’s first 12 months.
When approached for comment, a government spokesperson told Morning Wire, “Our latest figures show we have reduced consultancy spending by over £600m in 2024/25, exceeding our £550m target and bringing spend to a five-year low. The government is committed to halving consultancy spending and has announced further targets which will deliver over £700m in annual savings by 2028/29.”
Last November, a National Audit Office (NAO) report said the government lacked a clear, consistent picture of how much it spends on consultants and how that expenditure has changed over time, suggesting that the data was inconsistent.
It seems the government is starting to see that cutting this bill is not as easy as they once thought. Emma Carroll, a consultant at Source Global Research, said: “Many of the big areas of spend are where the work is complex, internal talent in the public sector is in short supply, and external expertise is particularly valuable.”
Civil servant skill shortage
The Tory government faced a multitude of serious issues, such as navigating the Brexit agreement and handling a pandemic, while Labour is dealing with the rise of AI and the pressure on defence, all of which require specialist skills that won’t necessarily be found within the civil service.
Since March 2023, official data shows that the headcount in the civil service has grown by nearly 40,000 to over 557,000, but governments are always under pressure to cut this bill. Labour is no exception to this, as it was revealed earlier this year that it is set to cut tens of thousands of civil service jobs and reduce the London-based civil service headcount by 12,000 by 2030 to drive down administrative costs.
The civil service has lots of good people, but the public sector has strict pay bands. Most would have seen those viral posts on social media, where the government is seeking a very highly skilled job, such as head of the Office for Quantum, paying just over £60,000 for a role that would demand six figures in the private sector.
It is also worth remembering that the consultancy sector, which is a key pillar of the UK’s professional services industry, generating massive tax revenues for the Treasury, holds public sector work in high regard. Corroll said: “The public sector is an important market for the UK consulting sector, making up around 14 per cent of the total. Source’s data forecasts that the market will grow by around 5 per cent this year to reach £2.7bn in the 2026 calendar year. This makes it the second largest sector after financial services.”
The Tussell data, from April, also highlighted that management consultancy spending actually represents “only a tiny fraction of total government procurement”, standing at two per cent of total procurement spend.
While a pitch to cut consultancy spending makes for a strong political message, governing now demands outside specialists’ expertise, as a public-sector skills shortage means reliance on consultants is likely to remain a fixture of government business.
‘Beyond The Billable’ is a weekly column focused on the professional services industry.