Central government spending on outside consultants and temporary staff is creeping back up in spite of progress made to rein it in since 2010, according to a new report by the public spending watchdog.
The Cabinet Office introduced additional spending controls in 2010 which required departments to obtain ministerial approval and inform the centre of government before appointing consultants for work lasting more than nine months and costing more than £20,000.
In its latest report, the National Audit Office (NAO) found that departments had “substantially” reduced their spending on consultants and temporary staff (referred to as C&TS by the watchdog) over the last five years, with the 17 main departments spending between £1bn and £1.3bn on outside and temporary help last year, down from £2.7bn in 2009-10.
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But the NAO found that spending had begun to increase in the last three years, suggesting only a “short-term reduction rather than a sustainable strategy”.
And it warned that there would “continue to be upward pressure” on the use of consultants and temporary staff against the backdrop of the latest round of spending cuts.
“Since 2011-12, departments have increased their annual spend on C&TS by between £400m and £600m, while reducing their permanent workforce,” the report said.
“Following the 2015 Spending Review, departments will have to invest further in transformation projects, which generally require support from C&TS, while cutting overall spending.”
The NAO said “significant” skills shortages still remained in areas including project management and IT, and warned that, faced with a such gaps, civil service managers “will increasingly use potentially higher-cost C&TS resources to bypass their department’s controls over recruitment as a way of paying market rates for the necessary skills”.
Departments are, in many cases, side-stepping the central government Crown Commercial Service (CCS) framework intended to drive down the cost of buying in outside consultancy and temporary staff, according to the watchdog.
“Departments appoint only about half of their consultancy and temporary staff through the CCS’s agreements. The Cabinet Office has instructed departments to use CCS agreements whenever possible.
“But appointments made through these agreements still account for only about half of the total departmental spending on C&TS. Departments are still using long-standing and local arrangements, which in some cases are more expensive than the agreements. This reduces CCS’s ability to negotiate fees by uing government’s spending power.”
The NAO warned that the cost of consultants and temporary staff was often “significantly higher than for comparable in-house staff” — estimating that Whitehall pays twice as much to hire a temporary specialist than to employ a permanent official at the equivalent grade.
“Although average daily rates paid wihin CCS agreements have fallen since 2011-12, data suggest that rates paid by departments for temporary staff overall have increased by some 18% since then,” it added. “This increase was due to increases in the proportion of expensive interim managers and technical contractors and in market rates for these skills.”
According to the NAO, there are now more than 47 temporary staff in the civil service on day rates of more than £1,000, compared with just 30 permanent senior civil servants on comparable pay.
The watchdog also found that there remained only “limited competition” for consultancy work, with the big six consultancy firms — PwC, Deloitte, KPMG, Ernst & Young, PA Consulting and McKinsey — scooping three-quarters of the work let through CCS. In contrast, small and medium-sized firms are winning only 9% of work through the CCS framework, and 5% of overall civil service consultancy spend.
"Fast and loose"
Launching the report, the head of the NAO Amyas Morse acknowledged that consultants and temporary staff could be an “important source of specialist skills and capabilities for departments that need to transform how they do business”.
“But such specialist staff can be expensive, costing twice as much as their nearest permanent staff counterpart,” he added. “Government spending on these staff has reduced significantly since 2010, when strict spending controls were introduced, but is now increasing once more.
“This suggests that the underlying issues have not been fixed. Professional workforce planning to address skills and capacity gaps in key areas is essential to drive down dependency on consultants and temporary staff.”
That view was echoed by Meg Hillier, the Labour MP who chairs the Commons Public Accounts Committee. She warned that some departments appeared to be “playing fast and loose with taxpayers’ money”.
“It is unacceptable that a lack of planning and an inability to recruit and retain permanent staff with the right skills at the right time means that departments are overly reliant on external staff in key areas such as project management and IT,” she added.
“The taxpayer risks losing out twice – with employment costs often twice those of employing a permanent member of staff and a loss of skills when their contract ends, perpetuating existing shortages.”
A spokesperson for the Cabinet Office — which is currently drawing up plans for new pay grades to try and help Whitehall recruit and retain specialists — said the government was “scrutinising spend like never before”.
They added: “We’ve stamped out excessive spending on consultants and put in place stringent spending controls. The total spend on consultants is still less than half of that in 2009/10.
“Of course we’ll need specialist expertise, especially where government is undertaking complex transformative projects and needs to draw on experienced minds. But we only do this when the key skills are not readily available within the civil service and where it delivers better value for taxpayers.”
"Sticking plaster solution"
The NAO’s findings were seized on by Prospect, the trade union whose members include government engineers, scientists and other civil service specialists.
The union’s deputy general secretary Garry Graham told CSW that the NAO’s findings proved the “cracks are starting to show” as a result of the Treasury’s decision to continue to hold down public sector pay rises to 1% a year.
“Specialist skills are being so hollowed out that the civil service is losing its ability to act as an intelligent customer,” he said.
“Evidence of the growing gap pay rates for civil service specialists and managers and their private sector comparators continues to mount – with gaps of between 20 and 30% not uncommon and often significantly greater.
“The real scandal is that in ignoring this fact, the government is not only putting operational delivery at risk but ends up paying over the odds for consultants and temporary staff. This is a sticking plaster solution, not a carefully-considered strategic approach.”
Alan Leaman, chief executive of trade group the Management Consultancies Association, meanwhile defended the role of contractors in providing advice to government.
"Critics of management consulting ignore the value firms deliver by helping to transform government services and drive massive efficiency savings," he added. “It would be a waste of money for government to recruit all the people it needs to implement change and keep them on the payroll when it has access to the UK’s outstanding consulting industry.”
Appearing before MPs just after the Spending Review, Cabinet Office minister Matt Hancock acknowledged that the civil service remained too reliant on external expertise and vowed to do more to build in-house capability.
“I think that the civil service, too much in the past, has thought that for difficult things they need to get outsiders in or contract things out,” he said.
“The civil service is absolutely brilliant at running big things and we want to make sure that people who have those skills are in the civil service on a permanent basis, working to improve the country that they serve.”
More detail on the Cabinet Office’s plans to offer improved pay and terms for some specialists is expected early in the new financial year, alongside a civil service-wide human resources strategy.