A damning report from the National Audit Office says that the annual consultancy bill has soared by 33 per cent in the past three years, from £2 billion to almost £3 billion, mainly because of increased spending in the NHS.

However, the report argues that almost £1 billion is wasted through inefficient use of management consultants by government and other public bodies.

Spending on external consultants in hospitals soared from £31 million in 2003-04 to £578 million last year, almost twentyfold, partly on IT consultants. Some of the money is being spent on finance consultants brought in by hospital trusts to reduce the £512 million NHS deficit.

In the first independent breakdown of the use of external consultants in Whitehall, the NHS and local government, the NAO admits that it is impossible to assess the benefits because departments collect little data and there is no performance review of contracts.

It also criticises civil servants for failing to consider in-house tenders that could save millions of pounds, or for sharing information on the most cost-effective firms.

Consultants can charge up to £2,000 a day, while the in-house cost for a civil servant is a quarter of the price, at £500.

“When used incorrectly consultants can drain budgets very quickly, with little or no productive results,” the report says.

Edward Leigh, chairman of the Commons Public Accounts Committee, said that departments must end their dependency on “the external consultancy gravy train”.

Although costs across central government are beginning to level off, spending is still rising in the Department of Health, the Cabinet Office, the Ministry of Defence and the Department for Education and Skills.

Total spending in Whitehall on external advisers is £1.8 billion, down £200 million from 2003-04, but much higher than previous estimates. Town hall spending on consultants rose from £101 million in 2003-04 to £386 million last year.

The six highest spenders in Whitehall last year were the Department for International Development (£255 million), the Ministry of Defence (£213 million), the Department for Environment, Food and Rural Affairs (£160 million), the Home Office (£129 million), the Department of Health (£126 million) and the Environment Agency (£110 million).

All the figures exclude outsourcing work and the use of consultants to fill in for absent staff so the total bill for temporary external recruits is likely to be much higher.

The companies winning the most government business over the past three years included IBM (£749 million), Logica (£431 million) and Accenture (£350 million).

Others with lucrative government contracts include PA Consulting, Capgemini, Mott MacDonald, Atos, KPMG and Deloitte.

The report calculates that the annual bill could be slashed by £270 million immediately by making more use of in-house staff, negotiating better contracts and getting improved results for money spent. The savings could rise 30 per cent to £540 million in three years time — a total of £1 billion over the period.

The NAO recommends using fixed-price contracts. At present 50 per cent of contracts are paid according to time taken, rather than work done.

George Osborne, the Shadow Chancellor, said: “With record NHS deficits and ward closures, Gordon Brown’s wasteful spending has meant that taxpayers’ money has been frittered away on consultants and reorganisations, instead of on improvements to frontline services.”

The Department of Health said that the NHS figures were “back of the envelope” estimates by the NAO. But it defended the use of consultants at its Whitehall headquarters.

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