Cutting Whitehall contractors could save £1billion, says think tank

• Policy Exchange report says the Civil Service cannot compete for the best talent and sets out six ways to improve pay and performance in Whitehall ahead of the Spending Review.

The Government could save £1 billion over the next four years by cutting the amount it currently spends on contractors by just 25%.

A new report by leading think tank Policy Exchange finds that after a period of restraint, the amount of money Government departments spend on external contractors has risen significantly, nearing pre-2010 levels. In 2014/15, Government departments spent £1.01 billion, up from £610 million in 2011/12. In 2009/10, the amount spent on off-payroll staff was at least £1.5 billion.

The paper says that in 2014/15 there were on average 18,380 contractors – consultants, agency staff and interim managers – hired across Whitehall. The departments that used the most external support were:

• The Ministry of Justice hired 4,537 off-payroll staff
• The Department for Energy and Climate Change hired 3,377 off payroll staff
• The Home Office hired 2,493 off payroll staff

The report suggests that devolving payroll responsibility to departments at the forthcoming Spending Review will help them to plug long-term gaps in expertise and save money by reducing waste and duplication in off payroll expenditure.

It makes a number of other recommendations about how the Government’s HR budget can deliver better value for money for taxpayers while ensuring that Whitehall departments can recruit the best talent and get rid of surplus staff:

• Continue to reform redundancy pay and make it easier to separate out employees who have jobs that are no longer needed or not performing to the required standard.
• Reallocate spending on training to recruitment: it is easier to hire exceptional people than train people to be exceptional.
• Restructure Whitehall departments by creating flexible pools of talent that can respond to business needs.
• Reallocate funding for the Fast Stream away from Generalist positions and towards the specialist streams like Commercial, Finance and Digital.

Damian Hind, author of the report, said:

“After a couple of years of restraint, expenditure on consultants and agency staff has ballooned again. While contractors clearly fulfil an important role in Government their persistent use reflects the serious flaws in the Civil Service HR system.

“Departments don’t appear to have a proper handle on the use of outside consultants and agency staff. Putting contractors on the payroll and giving departments a pre-determined HR budget will incentivise them to use consultants and interims more responsibly.”

ENDS

For a copy of the full report contact Nick Faith on 07960 996 233

A full table of the average number of staff (payroll and off payroll) and their total cost broken down by Whitehall department during 2014/15.

*only first 4 months of payroll data is available