Chancellor’s pledge to cut billions in govt’s consultancy spending in doubt – PAC report

Government is currently unable to deliver on its strategic objective to reduce spending on consultants. In a new report, the Public Accounts Committee not only casts doubt on government's ability to meet its aspiration to put an immediate stop to all non-essential consultant spending, but shows that it is not even clear if the Chancellor of the Exchequer's intention to halve this spending in 2025-26 is an effective approach to achieving the £1.2bn+ in savings aimed for by this year.

The previous government withdrew central spending controls on consultancy in 2023 to cut Departments' administrative burden. Cabinet Office relies instead on Departments to develop their own internal controls on how much they spend on consultants, but Departments' approaches here will vary. The data on how much Departments spend on external consultants are inconsistent – the latest estimate by HM Treasury was c.£1.36bn in 2022-23, but other sources put the figure at as much as £2.23bn. Government seems unconcerned at the many and obvious inaccuracies in its own data on the potential billions in taxpayer money that Departments are spending on consultants. The PAC's report finds that Departments are not complying with Cabinet Office directives on consultancy spend, and that their compliance in this area goes unmonitored.

The PAC's report calls for a list of which Departments are not complying with Cabinet Office requests on consultancy procurement, and a detailed breakdown of what each Department spends on individual private contractors, categorised by type of service.

The report further casts doubt on whether the Chancellor's announced intention to halve the government's spend on consultants in 2025-26 can be shown to be an effective way to reduce spending on external providers. Government has said this could “save over £1.2bn by 2026”. But the PAC's report points out that Departments often have large contracts that combine consultancy and professional services, making it difficult for departments to isolate the spend on consultancy services only. As a result government bodies may be under- or over-reporting their consultancy spend. This state of affairs may also allow Departments to reclassify and under-report, rather than reduce, their spending on consultants.

The government's strategic workforce plan has the potential to be a welcome step in supporting the better use of consultants, as Departments ought to be able to meet its requirements through proper planning and assessment of available resources rather than by hiring in a consultancy.  A Department may sometimes be able to look elsewhere in government for resources rather than going out for market, but the lack of a workforce strategy for the whole of government makes it very difficult for Departments to look beyond their own resources. The PAC wants to see a workforce plan from the Cabinet Office by May 2026, and this should include an assessment of skills gaps in government that require external resources.

The PAC's report further notes that emerging technologies, such as AI, have transformed the consultancy and professional services sector since 2022, and is calling for guidance for Departments to be published about the use of these technologies by these providers.

Clive Betts MP, Deputy Chair of the Public Accounts Committee, said: “Our Committee is concerned with value for taxpayers' money, and the Chancellor's pledge to stop public funds walking out the door to external providers where government could do the job itself is self-evidently the right course. But our inquiry has shown this may not be so simple, given that government does not yet have a grip on precisely what is being spent. With consultancy spend now wound so tightly into how Departments run their contracted-out work, and with so little and such inconsistent data available, actually bearing down on this spending will be a tough knot to unpick.

“The consulting sector will of course continue to play an important role in filling any specialist gaps where government truly does not have the requisite skills for project delivery, as well as demonstrating cutting-edge practice in the use of new technologies from which the public sector can learn lessons. At time of writing our report, we await the government's strategic workforce plan, which will help Departments more intelligently approach their use. With such a plan, government can understand what resources are available to it inhouse, rather than instinctively pulling the expensive consultancy lever for any difficult project and spending unnecessary billions in public funds in the process.”

PAC report conclusions and recommendations 

The Cabinet Office and HM Treasury do not have accurate data on what government spends on consultants which means the Cabinet Office is not able to set meaningful targets to reduce its reliance on them. The data available on departments' consultancy spending are inconsistent and vary from one source to another. Government does not have a clear picture of how much it spends or how this spending has changed over time. This makes it difficult to make decisions on use of consultants or monitor progress against its targets to cut consultancy spending. The Cabinet Office explained that the data it uses and that is most reliable are what is reported in the Annual Report and Accounts (ARA) of each department. However, the Crown Commercial Service believes that the true number is significantly higher than what is reported in the ARAs. Consultancy expenditure is reported in departments' accountability reports. However, unlike financial statements, the data on consultancy spend are not subject to audit by the National Audit Office.

Recommendation 1. The Cabinet Office should provide the Committee with a detailed breakdown of what each department spends on individual private contractors, with the amounts further categorised by type of external service, such as consultancy, contingent labour, and professional services.

The Cabinet Office is unable to deliver on its strategic objective to reduce consultancy spend because departments are not complying with its definitions and directives. The Chief Commercial Officer stated that some departments are not following Government Commercial Function guidance or the good practice set out in the Consultancy Playbook when defining consultancy requirements, going to market, or contracting. Cabinet Office stated that it has often reiterated guidance for departments but does not monitor compliance. This is further complicated by the fact departments do not routinely monitor compliance by their arm's-length bodies (ALBs). Cabinet Office is currently consulting with the Government Internal Audit Agency (GIAA) about what government can do to improve assurance over data, consistency controls and oversight of ALBs.

Recommendation 2. Alongside its Treasury Minute, the Cabinet Office should set out which departments are not complying with its requests on consultancy procurement and what it intends to do to address non-compliance.

The Cabinet Office is unable to demonstrate that the target to halve consultancy spend is an effective way to reduce spending on external providers. The Chancellor announced her intention to stop all non-essential spending on consultancy immediately and halve the government's spend on consultants in 2025-26. Cabinet Office wrote to all departments, requiring them to ensure they had internal controls in place for consultancy spending and to follow existing government guidance for procuring consultants. However, departments often hire a consultancy firm to provide a package of services. Firms may provide consultancy, professional services and contingent labour within the same contract. This makes it difficult to isolate the amount spent and departments sometimes struggle to report in their accounts how they allocate portions of such contracts to consultancy. As a result, government bodies may be under- or over-reporting their consultancy spending. The variability in definition and lack of rigour in reporting consultancy spend may also allow departments to reclassify spending and under-report rather than reduce spending.

Recommendation 3.   The Cabinet Office should update the Committee by July 2026 with data on the past three years of spend on all external resourcing, including consultants, professional services, and contingent labour, to demonstrate reduction in expenditure.

The Cabinet Office has not provided departments with up-to-date guidance on how to procure, learn from and manage consultancy. The Government Commercial Function (GCF) is responsible for the Consultancy Playbook, as well as the related Sourcing Playbook. The Consultancy Playbook offers departments relevant guidance on how to procure, manage and learn from consultants, but it was last updated in 2022. The playbook has many references to the Government Consulting Hub, including its Knowledge Exchange platform, despite this hub closing in 2023. Since 2022, emerging technologies, such as AI, have transformed consultancy and professional services. The Chief Commercial Officer explained that the GCF is in the process of updating the Consultancy Playbook and should publish a new version by Summer 2026.

Recommendation 4. The Cabinet Office should publish the updated Consultancy Playbook by July 2026.  It should incorporate guidance about use of emerging technologies by consultancy providers.

The soon to be released strategic workforce plan has the potential to be a welcome step to support better use of consultants. The Cabinet Office told us that all departments are complying with requests to update their strategic workforce plans, which will enable Cabinet Office to deliver the government wide strategic workforce plan. By properly considering the pipeline of upcoming work, and assessing the organisation's staff resources and skills, a department should be able to meet its requirements with existing staff, a new permanent staff member or contingent labour, instead of hiring a consultancy. In some cases, a team may be able to rely on resources elsewhere in government instead of going out to market. However, the lack of a whole government workforce strategy makes it very difficult for departments to look beyond their own resources. Cabinet Office is developing a strategic workforce plan for the civil service, which may address these issues. The Cabinet Office stated that the workforce plan will also include further details on departmental spending limits set by HM Treasury. The Cabinet Office said it will publish the plan but has not confirmed when.

Recommendation 5.

The Cabinet Office should commit to publishing the workforce plan by May 2026.  The Committee expects the workforce plan to include an assessment of skills gaps that will require external resources and further details on departmental spending limits.