Taxes are at a 70-year high. Inflation is running above 6pc. The deficit is still huge, and, as we discovered on Friday, we are stuck with zero growth.
There is not very much to make anyone feel optimistic about the state of the British economy right now. And yet there is just one glimmer of hope.
The consulting gravy train is coming off the rails, with all the major firms axing jobs and slashing bonuses. That is bad for the individuals involved, and especially the younger staffers losing their jobs early in their career.
Yet the British consultancy industry was too big and sucked too many resources out of the economy. Those people will be far more productive elsewhere.
It is turning into a tough winter for the PowerPoint maestros of the major advisory firms. Last week PwC axed 600 staff, blaming weaker demand for its services that had left it with too many people.
Deloitte is planning to get rid of 800 people, while EY and KPMG have also launched a round of redundancies. Meanwhile, BDO said last week that its partners had taken a 6pc pay cut, which will of course be even larger in real terms.
Add it all up, and one point is clear: the consulting boom is in real trouble. It is no longer the relatively easy and lucrative career choice it once was. Instead, as the trade might put it in a presentation, it is “right-sizing” itself to meet the “tough challenges” of a “transformed global landscape”.
We can, of course, all sympathise with individuals involved. It is always painful to lose your job, and that will be especially true of the younger staff who are likely to bear the brunt of the cutbacks.
It will come as a blow early in their careers, and it may well take a while to bounce back in a stagnant economy where there are no longer as many jobs available.
And yet, for anyone who wants to step back and look at the bigger picture, it may also be a blessing. The redundancies will be positive for the British economy overall.
The UK’s outsized consulting industry had become a problem. The industry just kept growing and growing. In 2013, it was worth £7.5bn annually in the UK, but last year that had punched its way through £10bn.
It is now 25pc bigger than it was a decade ago, but the British economy is not 25pc larger (sadly, far from it), and neither, come to think of it, is it 25pc better run either. In a stagnant economy, the advisory industry has been eating up a bigger slice of the overall pie with every year that passes.
There are two problems with that. The first is that consulting is essentially parasitical. There is no need to get into an argument about whether the advice it offers is any good or not.
Some of it is, no doubt, brilliant, some terrible, and the majority slightly mediocre. Consultants work on managing and reshaping existing wealth, but they don’t on the whole create products, or launch new units. They consolidate, rationalise, and slim down existing businesses instead of creating new ones.
The huge rewards on offer syphon off talent. If you can earn £1m a year as a partner at PwC or KPMG then why go through all the pain of launching your own business? After a decade at the top, you will have made £10m, far more than most businesses founders will ever make, and can retire comfortably.
It is far less stressful, there is little risk, and the chances of failure are low. Similarly, why bother running a medium-sized business? The rewards won’t be as generous, and the pressure will be much worse. We can’t really complain if the brightest people with the sharpest minds for business decide to make a career in consultancy. It is the easiest way to make big money.
If there are sustained cutbacks in the industry, that will start to change, and for the better. Every person “released”, “unallocated” or “outplaced” by the consulting giants will end up doing something more productive instead.
It might be working for a real company, one that actually makes things, serves customers, and expands globally. It might mean working for one of the thousands of fast-growing start-ups in the UK.
Many founders will admit that it is very hard to recruit senior executive talent, even with generous share options on offer, and yet those are often the people they most need to turn a promising new business into a stable, established company.
Perhaps best of all, they might become entrepreneurs themselves. Once a youngish graduate works out that they won’t be making £1m a year from becoming a partner at one of the big four, their next best option for earning some serious cash is their own business.
It might only be a few of the people who are let go who risk it, but if a few of them succeed it will make a significant difference to the economy.
It doesn’t matter what it is. Almost anything all the former consultants end up doing will have more impact than consulting ever will. They are, by definition, talented, energetic, and hard-working. The standards at the likes of PwC and EY are high.
You don’t get past the first round of interviews without plenty of confidence and brains, and if you don’t perform you get weeded out very quickly.
But the industry had become too big for the size of the British economy, and its outsized rewards sucked up too much of the available talent. If it finally starts to shrink a little, that will be painful for the partners, but the British economy will end up in far better shape.
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2023-11-12 10:00:00Z
CBMiZ2h0dHBzOi8vd3d3LnRlbGVncmFwaC5jby51ay9idXNpbmVzcy8yMDIzLzExLzEyL2J1c2luZXNzLWNvbnN1bHRhbmN5LWRlbWlzZS1pbmZsYXRpb24tam9icy16ZXJvLWdyb3d0aC_SAQA
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