Labour’s promise to slash government consultancy spending has collided with a stubborn reality: the public sector cannot stop relying on private experts. When Rachel Reeves, then shadow chancellor, addressed the Labour Party Conference in October 2023, she pledged to cut a budget that had “almost quadrupled in just six years.” The political message was clear. Taxpayers should no longer fund expensive outside help when the civil service could do the job.
However, new data suggests the direction of travel has reversed. Despite a pledge to reduce costs, Labour government spending on public sector management consultancy procurement rose to £3.7bn for 2024/25. For the central government alone, the bill increased by over £150m in the party’s first 12 months in power. This trend contradicts the initial narrative of rapid savings.
The gap between pledge and practice
In November 2024, the government unveiled plans for greater procurement control. The framework aimed to save £1.2bn by 2026. It included freezing non-essential consultancy hires and targeting a 50 per cent spend reduction in the years to follow. Reeves was not wrong about the past. The previous administration did rely heavily on outside help.
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Data from Tussell shows that spending on direct management consultancy in 2020/21 surged by over 30 per cent from the previous year. It reached £2.7bn during the first year of the pandemic. Yet, the current administration’s numbers tell a different story. A government spokesperson told City AM that they have reduced consultancy spending by over £600m in 2024/25. This figure exceeds the £550m target and brings spend to a five-year low.
The spokesperson added, “The government is committed to halving consultancy spending and has announced further targets which will deliver over £700m in annual savings by 2028/29.” However, a National Audit Office report from last November painted a more complicated picture. It stated that the government lacked a clear, consistent picture of how much it spends on consultants. The data, according to the report, was inconsistent. This suggests that cutting the bill is not as straightforward as the initial pledges implied.
Why the skills gap persists
Emma Carroll, a consultant at Source Global Research, noted that many large areas of spend involve complex work. She pointed out that internal talent in the public sector is in short supply. Consequently, external expertise is particularly valuable. The civil service is under pressure from multiple fronts. While the Tory government dealt with Brexit and a pandemic, Labour faces the rise of AI and increasing pressure on defence. These challenges require specialist skills that are not always found within the existing workforce.
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Official data shows that the headcount in the civil service has grown by nearly 40,000 since March 2023. The total now stands at over 557,000. Despite this growth, governments are always under pressure to cut this bill. Labour is no exception. It was revealed earlier this year that the government is set to cut tens of thousands of civil service jobs. It also plans to reduce the London-based civil service headcount by 12,000 by 2030 to drive down administrative costs.
The pay structure within the public sector adds another layer of difficulty. The public sector has strict pay bands. Social media often highlights roles, such as head of the Office for Quantum, paying just over £60,000. In the private sector, a similar role would demand six figures. This disparity makes it difficult to attract top-tier talent without external support. For those managing departmental budgets, the choice often comes down to whether to hire a permanent staff member at a capped rate or bring in a specialist for a specific project. The latter often becomes the pragmatic choice when immediate expertise is required.
A major pillar of the economy
The consultancy sector is a key pillar of the UK’s professional services industry. It generates massive tax revenues for the Treasury and holds public sector work in high regard. Carroll said the public sector is an important market for the UK consulting sector. It makes up around 14 per cent of the total. Source’s data forecasts that the market will grow by around 5 per cent this year. It is expected to reach £2.7bn in the 2026 calendar year, making it the second largest sector after financial services.
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Tussell data from April highlighted that management consultancy spending represents only a tiny fraction of total government procurement. It stands at two per cent of total procurement spend. This context is often lost in political debates about “wasteful” spending. While the absolute numbers are large, they are small relative to the entire government budget.
A pitch to cut consultancy spending makes for a strong political message. It signals fiscal responsibility to voters. But governing now demands outside specialists’ expertise. A public-sector skills shortage means reliance on consultants is likely to remain a fixture of government business. The government aims to deliver over £700m in annual savings by 2028/29.