Advisers helping the public sector to make cuts have a profitable strategy – talk about ‘the valley of death’, promise ‘salvation’, then take a share of the savings

Since 2010, when the coalition embarked on austerity, one profession has turned cuts to the public sector into a business opportunity: management consultants.

How did they get the gig? Are they doing essential work for beleaguered services or are they charlatans with a PowerPoint presentation?

You might ask why Whitehall and councils can’t make these decisions for themselves, but the severity of the cuts has meant that the people who normally make the cuts have themselves been cut. An entire strata of bureaucracy has disappeared, and management consultants have filled the hole. They advise on decisions that will profoundly alter the shape of public services in Britain, and so how they make these judgments is crucially important.

David Craig, a former management consultant with 30 years’ experience, explains that their aggressive business plan involves a problem-finding strategy.

“What you’re looking for is something that gives a big emotional shock to the client. We want to take them to what we call the ‘valley of death’.”

The “valley of death” is the apocalypse scenario, telling the troubled organisation that if they don’t do something huge and expensive to change quickly, it’s going to fail, fast.

Very few organisations need a complete overhaul; they need sensible tweaks. But this, Craig says, doesn’t sound dramatic. That’s why you hear consultants refer continuously to “transformation programmes”.

“Once we’ve taken them into the valley of death, it’s time for salvation. Now we go to the sunny uplands: it’s bad, it’s really bad, but working together we can save the situation. It’ll only cost you two or three million, or maybe you need to buy a computer system for another 50 million.”

This strategy of finding things to fix once you’ve got your foot in the door is known in the trade as “land and expand”. “You start to uncover issues in an organisation and put them under pressure,” says John Bennett, a former management consultant to the public sector. But is this cynical or just good business?

Facebook Twitter Pinterest The London HQ of PricewaterhouseCoopers. Photograph: Alamy Stock Photo

In Wales, PricewaterhouseCoopers rolled out a template called an “operating model assessment” across numerous councils, pocketing more than £5m. But this initial work, Bennett says, was to land bigger money with something called a “risk and reward” contract. Instead of accepting a fee upfront, the consultancy firm takes a percentage on any savings it can find. The more cuts that are made, the more money it takes.

One council in south Wales entered into a “risk and reward” contract that reportedly netted PwC 16% profits on all cuts made.

This might seem outrageous, but it’s a neat solution to a tricky situation. Councils accused of hiring expensive consultants can use a contract that avoids upfront money. And consultants have a stake in working hard to find new savings rather than rolling out a template.

PwC says: “It is important that our work delivers a tangible return on taxpayers’ investment. Our fees are often – and increasingly – dependent on the performance of our services, whereby we are only paid in full if we deliver the full benefits agreed.”

But is it morally right that management consultants are making a profit from cuts to public services? “I think it’s absolutely right that they should be rewarded for achieving what the public sector wants to achieve,” says Alan Leaman, chief executive of the Management Consultancies Association.

Anthony Hunt, the leader of another Welsh council, Torfaen, says that if the advice leads to some services being protected, then it’s a price worth paying. The danger comes when “strategic partnerships” with consultants create a dependency on consultants.

Consultants have been at the heart of government since the late 60s. Under Harold Wilson’s technocratic revolution, the civil service wasn’t trusted to deliver radical reform. The then minister of technology, Tony Benn, believed outside experts were the only way to make change happen. And so the allure of the “expert” was cemented in the minds of politicians of all political persuasions, and parts of Whitehall’s civil service were sidelined.

Some accountants and IT managers turned consultants, became outsourcing suppliers, running everything from prisons to road maintenance. They had figured out that actually running a contract worth billions was more lucrative than advising on who should run it, for mere millions.

McKinsey & Company has advised and restructured everyone from the White House to General Motors since the 1920s. But it has also been entangled in Enron and John Major’s privatisation of Britain’s railways. Firms such as McKinsey have been at the heart of government for so long, they arguably now provide the continuity and in-house knowledge the civil service once did, so the question is: what’s the problem?

The answer might be lack of transparency, which creates suspicion, even if it may be unfounded. There are good consultants out there, doing valuable work helping public services in critical condition stay alive. Their work is focused and necessary but here’s the key thing: they walk away when the job is done. It’s just the other kind we should worry about.

• Who’s Spending Britain’s Billions? is on BBC Two, Tuesday 18 October at 8pm

