Just eight weeks into the new Labour administration, we are closely monitoring the potential implications on consulting services. Despite much of this period being in recess, the countdown to the first budget (scheduled for 30 October 2024) is already prompting significant analysis within the consulting community. Adding to the anticipation is the upcoming Labour Party Conference, where the government’s policies are expected to be further clarified.

Labour’s Pledge to Cut Consulting Spend: A 50% Reduction on the Horizon

One of the most striking promises made by the Labour Party, both during the 2023 Labour Party Conference and later cemented in their manifesto, is the commitment to reduce government spending on consulting services by 50%. This translates to an annual saving of £745 million, or £3.73 billion over five years. The Financial Times highlighted this risk for consulting firms, noting that both the Conservatives and Labour have pledged to significantly cut spending on external advisory services.

Understanding the Scale: A 4% Revenue Impact for the Consulting Sector

However, to place this in context, the Management Consulting Association (MCA) Annual Report 2024 paints a more nuanced picture. The UK consulting sector has witnessed impressive growth, with revenues nearly doubling over five years, reaching £20.4 billion by 2023. The proposed reduction in government spending, amounting to £745 million annually, represents less than a 4% reduction in overall revenues for the sector. This assumes, of course, that the Labour Government is fully effective in achieving its target—a challenging feat given the history of similar pledges.

Lessons from the Past: The Coalition Government’s Approach

It’s not the first time the UK government has aimed to slash consulting spend. The Coalition Government elected in 2010 implemented similar measures, establishing a Cabinet Office Minister and Directorate with the explicit purpose of curtailing departmental spending on consultants. Initially, these controls were effective, though they were later abandoned by the Conservative Government in January 2023. Should Labour decide to reintroduce such controls, the consulting sector could face short-term disruptions.

Where the Opportunities Lie: Capitalising on Labour’s New Policy Commitments

Even if the Labour Government successfully implements a 50% reduction in consulting spend, there are other avenues where consultancies can not only recover but thrive. The MCA Annual Report 2024 attributes the recent growth of the consulting sector to the expanding markets of digital tech transformation and energy and net zero. These areas align well with Labour’s manifesto commitments, which include:

  • A Modern Industrial Strategy: This strategy focuses on leveraging new technologies, developing an AI sector plan, establishing a national data library to support cutting-edge research, and instituting 10-year budgets for key innovation institutions. This also involves planning reforms to build necessary data centres and infrastructure.
  • National Wealth Fund and Great British Energy: Labour aims to unleash investment through a National Wealth Fund, targeting industries of the future, and to accelerate the transition to clean power with the establishment of Great British Energy.

If these policy commitments are realised, they could create consulting opportunities that far exceed the anticipated reduction in government spend.

A Mixed Outlook with Potential for Consulting Growth

In summary, while the new Labour Government’s commitment to cutting consulting spend poses a potential challenge, their broader policy commitments could stimulate significant growth in other areas. The consulting sector, particularly those specialising in digital transformation, AI, and energy, stands to benefit from the anticipated focus on modern industrial strategies and clean energy initiatives. The next few months, leading up to and following the Labour Party Conference and first budget, will be crucial in shaping the landscape for UK consulting services.