Return of the ‘consultocracy’ – how cutting public service jobs to save costs usually backfires

It has been clear that change is coming to the New Zealand public service since the election campaign. Just what impact that change will have is less easy to predict now the new government is installed.

As part of its hundred-day action plan, the National Party initially pledged to “start reducing public sector expenditure by 6.5% on average” by cutting “back-office spending not critical to frontline services”.

While the phrase “start reducing” was ambiguous, one estimate put likely losses at around 6,500 full-time jobs. ACT Party leader David Seymour was more forthright, declaring an “absolute top” figure of 15,000 public service jobs could be at risk.

The final coalition government plan seems to have changed considerably, however, with the policy being to “start reducing public sector expenditure, including consultant and contractor expenditure”.

While the scale is considerably less clear, now is the time to ask what the effects of these potentially drastic cuts might be. History and overseas experience suggests they will not necessarily lead to the outcomes the government intends, for a number of reasons.

Job cuts don’t cut costs

Firstly, there is no simple, direct correlation between numbers of public service jobs and the public purse. As one former senior civil servant and now expert guide to the British civil service has put it:

Changes in civil service numbers do not necessarily translate into parallel increases [or] decreases in public expenditure, nor in the size of the state.

Partly this is because job numbers are at the whim of other government policies. Brexit, for example, saw a massive increase in full-time equivalent (FTE) public service jobs from 375,000 in 2016 to 475,000 by 2021.

More importantly, jobs can be reclassified rather than removed. For evidence of this we need look no further than Aotearoa New Zealand.

In 2009, John Key’s National-led government capped the growth in public service staffing. The then State Services Commission was tasked with monitoring this, and departmental chief executives were expected to actively keep numbers down.

The initial cap of 38,859 FTE positions set in 2009 was reset to 36,475 in 2012. There was also a special focus on reducing the number of communications and public relations advisers.

The Labour government removed the cap in 2018. This followed a review that concluded the policy had led to the “gaming” of jobs through reclassification, a massive loss of institutional knowledge, and too much focus by managers on staffing levels rather than service delivery.

Rise of the ‘consultocracy’

Perhaps most tellingly, while the Key government’s cap did reduce the number of public service jobs, it didn’t reduce the number of jobs being paid for by the public purse.

Instead, the cap simply contributed to a new “consultocracy” culture, a phenomenon well established in public policy research.

Between 2007 and 2017, shortly before the cap was lifted, the use of contractors and consultants increased by nearly 200%. This contributed to an overall wage and salary increase of 50%.

Cutting jobs did not cut public spending on salaries – quite the opposite. There is no reason to expect today’s proposed cuts will not simply create the same perverse incentives as before.

We should also ask who and what the term “back-office spending” refers to. Does it include legal, finance and human resources professionals? These currently make up a mere 5% of the total public service. Or perhaps it refers to clerical and administrative staff. They comprise 9% of the public service.

Definitions of “back-room” or “administrative” staff often lean towards simplistic dichotomies between “real” frontline workers and “made-up” office jobs.

But no organisation, private or public, can operate without administrative support provided by office managers, accountants, call centre operators, cleaners and security staff, advisers and policy analysts.

There is a choice between keeping these functions in-house or outsourcing them. Either way, there is no point pretending they don’t exist.

High trust and low morale

We might also ask who (outside of the government) is calling for a cull of public servants.

New Zealanders have a high level of trust in their public service: “80% […] trust public services based on their personal experience”, according to September figures from the Public Service Commission.

Indeed, the New Zealand public service stands out globally for trust and integrity. It consistently ranks highly in Transparency International’s corruption perception index.

Finally, the effects of the cuts could have a chilling effect on public service motivation. People tend to join and remain in public service to contribute to society. Few enter for personal enrichment or even long-term career advancement.

There is no doubt the public service can be made more efficient, and that saving public money is a good idea. But drastic job cuts will almost certainly not achieve this.

History shows it has the opposite effect, increasing spending through the use of consultants and contractors while demoralising those who remain. It would serve the new government well to remember this, before it ends up paying the private sector to provide public services.