Britain’s public sector is paying the price for the government’s consultancy habit

The pandemic has shown relying on these private companies to deliver core services simply doesn’t work

Last modified on Mon 20 Sep 2021 02.32 EDT

When he was leader of the opposition, David Cameron did not mince his criticism of the Labour government’s dependency on consultancy companies. Speaking in 2008, he lambasted how, “for the last decade or so, in the name of modernisation, rationalisation and efficiency, we have been living under a regime of government by management consultant and policy by PowerPoint.”

Fast forward 13 years, and those words could have been said by any politician about the decisions of Conservative governments since. As one Tory minister put it last year, Whitehall has been “infantilised” by an “unacceptable” reliance on expensive management consultants.

Lord Agnew’s comments came in the wake of revelations that the government was spending tens of millions of pounds on private sector consultants to deliver England’s test and trace system. Rather than see the challenge of developing this as an opportunity for public sector and NHS employees to put their expertise to use, ministers and civil servants relied on companies including Deloitte and Boston Consulting Group. The approach led to test result delays, IT system bugs and laboratory bottlenecks.

Even before the pandemic, similar patterns of events could be found across the public sector. In some areas of government, outsourcing core elements of new initiatives – analysis, management, delivery – to consultants has become the default. Meanwhile civil servants are assumed to be stuck in old ways and lacking relevant competences. Frequently, teams find they do not have enough internal capacity to deliver what ministers want, and feel they have no option but to outsource.

The UK state’s spending on consultancy has ballooned, notably in the past five years: Brexit and the pandemic have proved to be incredibly lucrative. Between 2017 and 2020, approximately £450m was spent on consulting fees related to Brexit by government departments, with the receipts for Covid-19 contracts coming in at over £600m. These figures alone could pay the salaries of more than 10,000 civil servants for three years – and total spending on consultants across the public sector is much higher. The bulk of this money has gone to large multinational firms, including the big four accounting consultancies – Deloitte, PwC, EY and KPMG.

The reliance on consultancies is not unique to the UK, though globally it is the second largest market for consulting after the US, with procurement more generally now constituting the single biggest component of government spending. Despite these sums, there remains very little awareness not just among the public, but also politicians and civil servants, about what these companies actually do.

In part, this is because their role over recent decades has broadly shifted from being one of providing specific insights to public officials, to taking over the delivery of core state functions and the development of policy areas.

The consulting industry has its roots in the late 19th century and the electrochemical revolution in the United States, but it was only in the postwar decades that the large, multinational firms characterising consulting today emerged. The rise of multidivisional companies and then the “shareholder revolution” of the 1980s created ample opportunities for management advice.

For much of the 20th century, consultants working for government did just that: consulted. All this began to change with the advent of neoliberalism in the 1980s and its public sector surrogate, new public management. The liberalising and privatising reforms of politicians in the UK and the United States during this time were premised on an assumption that governments are, at best, “market fixers”, which should take up as little space as possible in the economy. The idea that government failure is even worse than market failure made states fear risk taking, and thus pass responsibility on to others. Under Margaret Thatcher, government spending on consulting services soared from around £6m annually in 1979 to £246m, with companies even contracted to help deliver the privatisation of state-owned enterprises.

New Labour did not change tack. Although they viewed the state as an important arbiter of social values, “Third Way” politicians did not see the advice of management consultants as potentially at odds with this role. They also did not believe that the delivery of these social objectives needed to come from public bodies, and in fact viewed the market as a more effective vehicle for providing and managing public services. As public bodies transferred more and more responsibility to management consultancies and outsourcing firms, the processes for delivering their core functions became more opaque, and less accountable.

Our gaps in knowledge about what consulting companies actually do today in their work for the British government are also owed in large part to the strategies of the companies themselves. In their work with governments and business, discretion is key. Opacity is what enables them to secure contracts with clients, from crown princes to weapons manufacturers. Many companies have even adopted corporate forms that allow them to limit what they disclose to regulators and governments.

What we do discover about the activities of these companies is nonetheless often cause for alarm. Barely a week goes by without some reporting of a new consulting car crash, whether it’s BCG and Deloitte’s involvement in the test and trace programme; KPMG signing off on Carillion’s accounts months before its collapse; or McKinsey advising the manufacturer of OxyContin how to increase its sales of the opioid now at the heart of the US overdose crisis.

Particularly in their work with private sector clients, we nonetheless simply do not know the scope and scale of these companies’ activities. In the wake of tax haven leaks, one academic investigation from 2017 found that the big four have offices in 43 of the 53 secrecy jurisdictions, with more staff in Luxembourg, the Cayman Islands and Bermuda as a proportion of the total population than any other country. Although these companies purport to separate their audit, tax and consulting service lines, their likely role in such anti-democratic activity as tax avoidance should force us to question whether they can be trusted as government contractors.

The pandemic has highlighted just how important it is to have governments that are adaptable, capable and accountable. The more we rely on the consulting industry to deliver critical policy and service functions, the less our democratic system is able to maintain the dynamic capabilities and capacity that will enable us to confront the challenges of the future – from climate breakdown to health emergencies. It is time to put an end to today’s “regime of government by management consultant and policy by PowerPoint” – and instead invest inside our public sector, building an economy that serves the common good.

Rosie Collington is a PhD student at UCL Institute for Innovation and Public Purpose. Mariana Mazzucato is professor of economics at UCL, director of the Institute for Innovation and Public Purpose and author of Mission Economy: A Moonshot Guide to Changing Capitalism

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