If Whitehall cut its contractor budget by 25% it could hire 300 CTOs

Profile picture for user ddpreez By Derek du Preez November 12, 2015
The British government has a skills problem. It's got capability gaps that need filling. And yet it's spending over £1bn on contractors instead of hiring and retaining talent. Why?

The British government’s hefty contractor bill has been brought into a question by a new report released by Policy Exchange, a Conservative-leaning think tank. The Whitehall Rules! report highlights that after a period of restraint, the amount of money central government departments spend on off-payroll staff has risen significantly, nearing pre-2010 levels.

In fact, in 2014/15 Whitehall departments spent £1.01 billion, up from £610 million in 2011/12.

However, it’s not just the spend itself that’s the problem - although the amount is somewhat of a worry - it’s that the use of contractors and management consultants is leaving gaps in capability in the government’s skill set.

This is critically important considering the digital transition that many government departments are currently attempting to undergo. The Policy Exchange report highlights that more effort should be put into hiring and retaining specialist staff that can bring Whitehall these required capabilities.

And given the budgets we are dealing with here, the government has the financial clout to get the right people in.

As the report notes:

Reallocating just 25% of the money spent on non-payroll staff could add around £250m to the paybill budgets of Whitehall departments. To put that into perspective, £250m would cover the annual costs of recruiting 1,250 new Fast Stram economists, 400 Commercial Directors, 300 Chief Technology Officers, 250 Finance Directors, and 150 high-quality HR professionals.

If departments spent 25% less on contractors compared to 2014/15 then the Government could save £1 billion over the next four years.

Departmental breakdown

The report states that there were on average 18,380 contractors - consultants, agency staff and interim managers - hired across Whitehall during 2014/15. The departments that used the most external staff were:

  • The Ministry of Justice - hired 4,5237 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
  • Ministry of Defence - hired 1,601 off-payroll staff
  • Department for Business, Innovation and Skills - hired 1,582 off-payroll staff
  • Department of Health - hired 1,468 off-payroll staff

However, what’s interesting is that whilst Policy Exchange recognises that sometimes consultants and contractors are needed, it does not think that this compensates for hiring in strong talent that stays for a number of years. The report reads:

To be clear, interims and consultants are sometimes needed given the specialist expertise they can bring into the Civil Service and the demand-driven nature of Government activity. However a portion of the money that the Government currently spends on contractors would clearly be better spent making targeted recruitments in permanent and specialist staff (project managers, digital
engineers, commercial buyers, and HR professionals).

The claim that it is cheaper to hire specialists on a temporary basis is discredited by the large sums that the Civil Service persistently spends on off-payroll workers.


The Policy Exchange report makes a number of suggestions to the government about how to better recruit and keep the talent it needs in order to become a more effectively operating government. Some of which include:

  • Devolve paybill control to departments, giving individual managers greater flexibility over how they choose to deploy their HR budget to meet their organisational needs. This will force departments to think more strategically about what they need in terms of skills and capability, and over multiple years.
  • Reduce the use of consultant and agency staff; make permanent recruits where needed to plug longstanding gaps in capability and reduce staff costs over the long-term.
  • Continue to reform redundancy pay and make it easier to separate out employees who are genuinely redundant, for example poor performers and people who no longer have the skills that the Civil Service needs.
  • Reallocate spending on training to recruitment. It is difficult to convert average workers into high-performing ones; the Civil Service should prioritise investments in attracting and assessing the best external talent.

However, one of the key arguments to come from the report is that the government needs to focus more on creating specialists, as opposed to generalists. One of the easiest ways it sees to do this is by shaking up Whitehall’s graduate recruitment scheme - the Fast Stream - which moves the best and brightest students up the ranks into leadership roles within three to five years.

Despite the scheme’s popularity, Policy Exchange notes that it feels “dated” and that it is geared towards hiring generalists rather than specialists. It argues that this needs to change. The report says:

new skills

In the short-term, given the significant imbalance between generalists and specialists within the Civil Service, there is a strong case for reallocating funding for the Fast Stream away from generalists and towards the specialist graduate schemes such as the economic, finance and commercial Fast Streams.

Minimising recruitment to the Generalist Fast Stream for two years could unlock over £100 million additional funds that could be reallocated to recruit graduates into the new specialised schemes.

My take

Skills has always been a problem within Whitehall - particularly when it comes to getting the right people in to make sensible commercial decisions. There have been far too many government contracts that have gone sour and left the taxpayer with a huge bill to pay, with little result, largely because poor commercial skills were in place.

The government has done a good job of late getting in strong leaders - particularly in digital fields - but this now needs to filter down throughout departments and not just sit in pockets of Whitehall.

Changing this is important.