Chancellor Rachel Reeves is facing a significant hurdle in her ambitious plan to slash Whitehall's massive consultancy bill, as a new report reveals the government cannot accurately track its own spending on external advisors.
Ambitious Savings Targets Meet Data Chaos
Despite setting a clear target to halve overall spending on consultants in 2025-26, the government lacks a consistent picture of its current expenditure, according to a damning National Audit Office (NAO) report. Reeves aims to save £550 million in 2024-25, building towards £700 million in savings by 2028-29.
HM Treasury estimated central government spent approximately £1.36 billion on consultants in 2022-23, though other sources suggest the true figure could be substantially higher. This data inconsistency directly hinders efforts to monitor progress toward spending targets, preventing effective fiscal decision-making.
Roots of the Spending Crisis
The NAO identified that departments use different definitions of consultancy work and struggle to classify services when firms provide combined packages of professional services and contingent labour. This confusion stems from the previous Conservative government's decision to withdraw centrally directed spending controls, which led to external fees ballooning to an estimated £3.4 billion between 2023 and 2024.
While departments were encouraged to develop internal controls, the NAO found significant discrepancies in how stringently these were applied across government.
The Value and Cost of External Expertise
The report acknowledges that consultants can provide valuable contributions, with 86% of respondents agreeing they bring essential expertise, particularly for specific problems lacking internal civil service capability. However, the NAO emphasises they should only be used where they represent the best value for money, not to replace necessary internal capacity.
Substantial sums have been paid to major consulting firms for projects like HS2, with PwC receiving £102 million, Deloitte £86 million, EY £25 million, and KPMG £9 million.
Tamzen Isacsson, chief executive of the Management Consultancies Association, defended the use of private sector expertise, stating: "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."
Sir Geoffrey Clifton-Brown, chair of the Public Accounts Committee, noted that "consultants can add value across a variety of workstreams... these are costly services, so it is important that they are used appropriately." The PAC will be investigating this matter in the coming months.
The NAO has developed lessons for maximising value, including engaging better with suppliers, adding knowledge transfer agreements to contracts, and maintaining stronger oversight of work conducted.
This scrutiny comes as the government cuts civil service jobs through efficiency drives, office closures, and administrative cost reductions, with Reeves targeting a 15% reduction in government running costs by the end of the decade.
A Cabinet Office spokesperson commented: "This government is committed to relentlessly rooting out waste, driving efficiency, and protecting taxpayers' money. That includes reducing back office costs by 16% to save £2.2bn a year by 2029-30 having already halved consultancy spending this year." They added that action is being taken to improve data definitions and standards across government commercial teams.
