Policy Exchange warns on Whitehall’s rising off-payroll costs

12 Nov 15

Whitehall spending on consultants, agency staff and interim managers has begun to rise again and the government should set a target to cut spending by 20% by the end of the decade, according to the Policy Exchange think-tank.

An analysis of departmental spending found that the amount of money government departments spend on external contractors has risen from £610m in 2011/12 to £1bn in 2014/15. This is despite a drive led by former chief secretary to the Treasury Danny Alexander in the coalition government to tackle off-payroll arrangements, which had cost £1.5bn in 2009/10.

The think-tank found the department with the most external support was the Ministry of Defence hired 4,537 off-payroll staff and had the highest off-payroll staff bill in 2014/15 at over £228m. This was followed in pay bill terms by the Department of Health at over £148m, and the Ministry of Justice at £141m. The Department for Communities and Local Government spent £8.6m, while the lowest level was recorded at the Department of International Development, which spent just over £3m.

Report author Damian Hind said that after a couple of years of restraint, expenditure on consultants and agency staff had “ballooned”.

He called for a series of reforms to the human resources function in government to tackle the cost, including restructuring departments to create flexible pools of talent that can respond to business needs, and implementation of a planned £95,000 cap on redundancy pay.

“While contractors clearly fulfil an important role in government their persistent use reflects the serious flaws in the civil service human resources system,” Hind stated.

“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.”

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