Anger as Whitehall spends £7bn on private consultants

Government departments have spent £7.2bn on consultants in three years, but appear not to have a clear idea of what value they got for their money, according to the first authoritative survey by the official public spending watchdog.

The sum - equivalent to the salaries of more than 100,000 nurses on average NHS pay - provoked fury from public-sector unions battling against job cuts, but a spokesman for the consultancy industry said it was money well spent.

Investigators from the National Audit Office were alarmed to find that about half the government contracts awarded to consultants are on a "time and materials" basis - meaning the longer consultants take, the more they get paid.

When the Passport Service brought in PA Consulting to pave the way for introducing ID cards, fees piled up at more than £2m a month, to reach a total of £34m since May 2004.

Peter Hill, chief executive of the Management Consultancies Association, said the industry agreed there should be fewer contracts. The industry would prefer to be paid by results, he said. But he claimed consultants offered "skills and competency not often available in the public sector against a background of unprecedented public sector reform".

The National Audit Office found 28 top-spending government departments hadspent £4.6bn in three years. The NAO estimated other government agencies spent an additional £2.6bn. The biggest source was in introducing new IT systems, with IBM alone receiving £749m in three years.

But some departments had to ask the consultants for an estimate of what NHS trusts are spending because the Department of Health could not tell them. The NAO estimated £578m just for 2005-06, compared with £31m two years earlier, the biggest increase in government. A large part is attributed to "Connecting for Health", a 10-year programme to improve use of IT by health trusts.

Dave Prentis, leader of the public sector union Unison, said: "Isn't it a disgrace that the NHS should be handing over such huge amounts of money to the private sector when it could go into frontline patients' care? We have hospitals struggling with deficits, nurses losing their jobs and wards closing."

The NAO also found very little evidence of civil servants reviewing the usefulness of work done by consultancy firms. The Ministry of Defence, which has been cutting back on the use of consultants, showed it cost an average of £1,200 a day, but if staff can be deployed to do the same work, the cost drops to £550 a day.

Edward Leigh, chairman of the Commons Public Accounts Committee, said: "Too often departments hand over a signed cheque without looking at what skills are in-house. However, the most damning finding is that, time and again, departments fail to keep an eye on how these companies perform or if they are delivering."