Big Four under pressure as government looks to slash £5.4bn consultant bill

The UK government should consider cutting its reliance on management consultants, a top think tank has urged, piling further pressure on the Big Four firms.

The Institute for Government (IFG) said in a report on Thursday that £5.4bn worth of management consultancy contracts will come to an end over this Parliament, based on data from procurement specialist Tussell.

In 2025 alone, more than 1,700 management consultancy contracts worth £2.4bn will end, it said. The report added that IT services contracts worth £23.4bn could also expire. 

The IFG said the government had the opportunity to save money and reduce its reliance on external consultants by not renewing non-essential agreements.

New Chancellor Rachel Reeves is looking to halve government spending on external contractors and save more than £1bn over the next two years amid criticism that Whitehall has grown overly reliant on costly advisers including Big Four firms EY, KPMG, PwC and Deloitte.

The Labour government scrapped a Conservative plan to cut 66,000 civil service jobs and expects a significant portion of work outsourced to the private sector to be carried out in-house.

The IFG acknowledged that while the government had reduced its reliance on a small group of companies it considers “strategic suppliers” between 2018 and 2023, public procurement from small and medium-sized firms was “stubbornly flat” at around 19 per cent of the total.

The report criticised the government for “virtually never” excluding underperforming firms from supplying the public sector amid a lack of competition, letting non-commercial specialists manage billions of pounds worth of contracts and discouraging new providers from bidding for business.

It urged the Cabinet Office to conduct “targeted reviews” into suppliers the public sector is most exposed to and clarify how they could be stopped from bidding for contracts in the future, as well as publishing better quality data to improve value for money.

The Procurement Act 2023, which comes into force in October and will replace EU legislation, is aimed at boosting transparency and will mandate a new online register of contracts to reduce duplication.

“The new government has an opportunity for a step-change in how it holds suppliers and the public sector to account,” said Nick Davies, programme director at the IFG.

“Procurement makes up almost a third of all government spending. Given the difficult fiscal inheritance the government is facing, getting accountability in procurement right should be central to delivering mission-led government.”

A government spokesperson commented: “We are taking action to stop all non-essential government consultancy spending in 24/25 and halve government spending on consultancy in future years, with a target saving of £550m in 2024/25 and £680m in 2025/26.

“This government will publish a new national procurement policy statement in February, to harness the billions of pounds spent by public sector organisations each year and ensure commercial activity, and what we expect from our suppliers, align with our missions.”

Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA) said: “It is unrealistic and unpractical to expect government to employ a large number of private sector experts and resources, and far more cost efficient to use external support for short term projects to help improve the efficiency and delivery of critical national services.

“It is also often important to have an independent and external viewpoint, as identified by public sector clients themselves in independent surveys.”

He added: “Consultancy is procured via highly regulated competitive commercial frameworks, which requires consultancies to demonstrate how they meet stringent cost and value criteria. This includes showing how they would upskill the civil service.”

Big Four make big bucks from government contracts

The central government has spent more than £3.3bn on contracts with the Big Four since 2019, according to data provided to City A.M. by Tussell. Spending peaked at £790m in 2021 and came in at £569m last year.

Over the period, the biggest departmental spend came from the Foreign Commonwealth and Development at £561m, while the Department of Health and Social Care spent £418m.

A potential slump in public sector contracts comes at a challenging time for the Big Four as they trim jobs following reduced demand against a tougher economic backdrop.

EY and KPMG declined to comment on the government’s plans. PwC and Deloitte did not respond to requests for comment.

“We stand ready to serve the government and recognise the financial constraints the current administration is facing,” Isacsson said.

“The cost savings the government is making in its wide definition of ‘consulting’ include resource augmentation and reduction in interim contractors, which have increased significantly due to headcount limitations on Civil Service hiring and increased demand on government departments.”

He added that the MCA shared “government’s ambitions to have a laser focus on value for money and to use our sector to deliver outstanding public sector projects”.