In this blog, our Head of Policy, Fraser Battye, shares his reflections on a recent ‘SU INSIGHTS’ event on the ‘Internal Consultancy’ model.  

Jean-Baptiste Colbert, Chief Minister to King Louis XIV, is credited with saying that:

“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.”

Plausibly, the same principle applies when charging for consultancy services. If so, then the UK Government is currently hissing very loudly indeed. 

Public sector spending on management consultants was around £3.4 billion in 2023/24. Central government accounted for 58% of the 23/24 expenditure; the NHS (15%) and Local Government (17%) were the next largest consumers. 

Recent years have seen rapid growth in this market. The pandemic response accounted for much of this growth; it also provided some shocking examples of apparent price gouging. 

At the highest levels, Government therefore wants to reduce the use of external consultants, targeting savings of over £1.2 billion by 2026. The primary rationale is cutting waste, but there are also well-documented concerns about wider effects of consultants on government and public services. 

Yet the need to bring in specialist support on a temporary basis remains. And independence is often helpful - or even essential - when doing so. Even eye-watering levels of waste can’t explain a £3.4bn market: there must be useful and appropriate demand in there too. 

Recognising this, and wanting to share more about our experiences as an NHS team that runs ‘as an internal consultancy’, the Strategy Unit recently held an 'SU INSIGHTS' event to look at this model. Readers wanting detail should watch the recording; here is what I took from the event. 

Professor Andrew Sturdy (University of Bristol) and colleagues have amassed an evidence base on the use of external management consultants - much of which has been done within the NHS. At the event, Professor Sturdy rehearsed the headlines: including the incredible finding that use of external consultants is associated with reduced efficiency. 

He then looked at the ‘Internal Consultancy’ model. Here Professor Sturdy pointed to a forthcoming publication, the headlines of which are already partially available, suggesting that:

“…investments in internal consultancy, with its knowledge situated in the public sector, have a positive impact on financial performance, whereas a high reliance on external consultants has the opposite effect.”

There is subtlety in the results, but this provides a suggestion that Internal Consultancy is a possible route to better value for public money. 

But how? What does experience suggest? 

This question was addressed by Jess Boothroyd from the NHS Transformation Unit and the Strategy Unit’s Peter Spilsbury. Both shared experiences of running Internal Consultancies from within the NHS; they reflected upon the up- and down- sides of the model.    

Their views on how Internal Consultancy could achieve greater value than external consultants included:

• Having incentives to share knowledge, rather than protect and commercialise it. The use of open analytics is a concrete example. ‘Produce once and share openly’ is good analytical practice and it radically changes incentives. Because it is open it also allows direct, technical comparison of analytical work.
• By being part of – and moving around within - the NHS ecosystem, Internal Consultancies can detect problems as they are emerging. This can stimulate innovation.
• Being part of the NHS creates longer-term incentives: internal teams live with their results in a way that external consultancies do not.
• Being animated by public values. Internal Consultancies can recruit highly specialist and in demand technical staff who want to use their talents to further the common good.
• Not having to sustain costs associated with the partnership structure common in private sector firms. Like-for-like fees are typically therefore lower, as are incentives to do ‘low value but high fee’ work.
• They have expanded and contracted according to customer demand, showing how the NHS can make use of commercial disciplines to contain financial risk. They are a way of creating more entrepreneurial, flexible public services of the kind that Government wants to see. 

And yet several salutary points were also raised. No-one will have left the session convinced that the Internal Consultancy model is a done deal. 

The challenge of operating to ‘commercial’ disciplines within wider NHS systems not designed to support this featured in both Jess and Peter’s cautionary tales. Within this, Jess noted that the networking and relationship building practices of commercial firms could never be replicated from inside the NHS. 

The net result is low awareness of the fact that Internal Consultancies even exist. And if there is low awareness, they are unlikely to be nurtured – leaving the original problem of outsourcing when specialist skills are needed.  

But perhaps more substantively, Jess and Peter both pointed to downsides of the model that follow directly from its upsides. For example, that:

• ‘Do once and share’ is excellent for creating public value, but – by design – it reduces income because reselling is not an option.
• Specialising in NHS work offers high-grade expertise, but – again by design – minimises scope for deploying staff into other markets if the NHS, for example, began to reorganise itself.  

These are not trivial problems. In combination, they may make the business model less stable. Perhaps the very features that make the model valuable also leave it vulnerable? 

The event was designed to open conversation rather than to conclude it. We didn’t spend long discussing that actions that might be needed to support and grow Internal Consultancies. We will return to this. 

The goose has finally hissed, and a well-plucked Government is looking for a way to reduce its dependence on management consultants. Will it see Internal Consultancies as part of the solution?