As real-terms pay in Britain continues to fall, and cuts to vital services, including in the justice system and housing, endure, there appears to be a one-line item in the government’s budget that is immune to the cost of living crisis: private-sector consultants.
The Guardian recently revealed that UK ministers had quietly dropped controls on spending on consultants, removing restrictions that required central authorisation if contracts with groups such as Deloitte, McKinsey and Boston Consulting Group lasted more than nine months or exceeded £600,000.
These rules had not prevented spending from mushrooming in recent years: one estimate suggests that the UK public sector awarded £2.8bn in consulting contracts in 2022 – up 75% on spending in 2019. But the move nonetheless makes clear that Whitehall’s love affair with the sector is far from over – despite mounting evidence that this way of running a country is a recipe for failure.
Indeed, the omnipresence of consultants across the global economy is striking. In the past decade, the largest firms have been hired to help design smart cities, develop net zero strategies, propose education reforms, counsel armies, manage the construction of hospitals, draft medical ethics codes, write tax legislation, oversee the privatisation of state-owned enterprises, manage mergers between pharmaceutical companies, and govern the digital infrastructure of countless organisations. Consulting contracts span supply chains and sectors, across countries and continents, affecting all levels of society, though most revenue is derived from just a handful of countries, including Britain.
The recent news is not the first time that a UK government has reneged on earlier pledges to quit the consultancy habit. In fact, David Cameron, who introduced the now defunct controls on consulting spend, was guilty of that himself. He promised in 2008 to reverse what he described as New Labour’s “government by management consultant”; once he was in office, public sector consulting contracts proliferated. Although spending among Whitehall departments did decrease initially, consultancies were allowed to bid for contracts at rates far below what they would normally charge, often working for free, in the attempt to maintain connections in government. As the head of public sector at KPMG put it candidly in 2011: “We can’t afford to do it indefinitely, but we can in the short-term. We’re hoping to position ourselves well when the government decides it is willing to pay.”
Ultimately, austerity has been good business for the sector: as administrative capacity in the public sector shrinks, demand for outsiders blooms. Take the NHS. In the years following the Conservative-Liberal Democrat reforms to NHS England in 2012, it emerged that the health service had been spending millions of pounds on consulting services. The reforms had mandated local GPs to be in charge of commissioning health services – making decisions about what their communities needed. But as groups including the Royal College of General Practitioners had forewarned, many simply didn’t have the time or resources to do everything that was required. So who did they turn to? The likes of McKinsey, EY, Deloitte and PricewaterhouseCoopers. By the end of the decade, the scale and scope of consultant contracts across the UK public sector was beyond comparison to previous periods. Between 2016 and 2019 alone, spending on management consultancies in the NHS more than trebled.
The theory that this way of doing things increases “efficiency” or “innovation” is just that: a theory. It’s based on the assumption that expertise and capacity can be bought off-the-shelf, rather than developed over time inside an organisation. In reality, consultancies often do not deliver what was initially promised. A parliamentary inquiry into England’s test-and-trace programme, for example, found that “consultants accounted for nearly half of [its] central staff”, and concluded that it had “not achieved its main objective to help break chains of Covid-19 transmission and enable people to return to a more normal way of life”. One person we interviewed detailed how the huge number of consultants hired to work on test and trace became an operational hindrance. Their lack of knowledge about government processes meant staff spent a lot of time responding to basic questions over email, “taking attention away from actual work”.
Meanwhile, the evidence piles up. One recent academic study on the use of management consultancies in 120 NHS Trusts found that despite “spending around £600m on consultancy over four years, there is no sign of improved efficiency overall”. In Australia, the government spent A$6m (£3.33m) on a contract with McKinsey to help develop its net zero climate strategy, but analysts subsequently found the modelling was full of holes. The illusion of consultancies’ panacean capabilities has nonetheless taken root in the public sector, in part because of another embedded myth in our economies: that the public sector is inefficient, ineffective and un-innovative. Where possible, it should get out of the way and let the private sector do the work, reaping the financial rewards while the risks of failure remain with the government and citizens.
If their outcomes are so bad, why do governments keep relying on them? It’s partly self-fulfilling. A reliance on external consultancies can weaken internal capacity over time – causing departments to become infantilised, as one Conservative minister put it during the first year of the pandemic. The more governments rely on consultants, the more they lose capacity to do things themselves, creating a dependency. Meanwhile, consultancies rarely take on the risks of their advice being flawed. The nature of consulting contracts can make it challenging for clients to convincingly pinpoint blame when something does go wrong, and limited liability clauses also legally protect the firms.
This skewed risk-reward relationship is at the heart of the consulting industry’s business model. Instead of wasting billions on external consultancies that stand to benefit from the hollowing out of Whitehall, governments should invest internally in creating capable organisations that foster learning and are empowered to take risks. Of course, departments should also work with other organisations and people that can help them achieve their democratic mandates – but this advice should come from the sidelines, provided by people with genuine expertise and experience.
It’s time to invest in the collective intelligence of the public sector, and end the consulting con once and for all.
Mariana Mazzucato and Rosie Collington are authors of The Big Con: How the Consulting Industry Weakens our Businesses, Infantilises our Governments and Warps our Economies, which is out now