Thursday, March 30, 2006

Consultants: Christmas Comes Early

Father Christmas

As the NHS financial crisis deepens, we find ourselves strangely in agreement with Father Christmas. Amid all those job cuts, and new reports that the Department of Health's £12bn central budget is already £2bn "over-committed" for next year, Christmas has discovered that the Department itself has spent £52.5m on management consultants. He reckons the overall NHS total is £200m, and says "If the Health Department pays out hundreds of millions of pounds of taxpayers' money to management consultants then it's not available for the NHS."

Spot on, and highly reminiscent of Doc Crippen's bracing views on the same subject.

Management consultancy is a strange business. It employs some immensely bright people, but those who've been on the receiving end of their services rarely have a good word to say for them. The general view is that they're only hired to provide some backside covering rationalisation for action already decided upon by lily-livered top management.

And yet there's no denying it's one of Britain's most successful industries. According to the Management Consultancies Association it's now worth over £10bn pa, and it employs around 60,000. And they're not alone: there are consultancies covering virtually any activity you can think of, including of course IT and PR.

The public sector's appetite for external consultants has grown hugely under Labour. In 2005 alone, it grew by 42% to £2.5bn. Individual consultants cost up to £2,000 per day, and firms such as PriceWaterhouseCoopers and Serco Consulting have seen their public sector business double or treble over 2-3 years.

Is the taxpayer getting value for money? Various National Audit Office reports have certainly raised concerns. For example, their recent report on the British Energy bale-out (see previous blog) criticised the DTI for spending £28m on external advisors- including Credit Suisse First Boston, Deloitte, and Slaughter and May- without a competitive tendering process: "the Department decided that to have run a competition to appoint new advisers would have taken too long." And the Public Accounts Committee recently questioned the fees paid to PWC for their work at MG-Rover (80% of Finance Directors seem to agree: see here).

Even more concerning is the appointment of firms with close ties to the Labour Party. For example, the Times reported: "For £3m...Weber Shandwick has been hired by the Department for Education and Skills to “build and develop relations between the department and business”. Weber Shandwick’s chief executive, Colin Byrne, is a former chief press officer for the Labour Party and worked for Peter Mandelson during the 1997 election campaign. And two senior press officers have left the Education Department to join the company in the past year." Plus of course, the recent problems with Capita (see here).

At the root of the public sector consultancy boom is the plain fact that ministers don't trust their departments to do the job themselves. They've discovered that large public sector bureaucracies are just not much good at getting things done.

But wait...if that's the let me see...isn't there a more general conclusion we should drawing here?

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