The scale of the reliance of London councils on private consultancy and outsourcing firms is laid bare in a report that shows the local authorities paid them more than half a billion pounds last year.

The report by the Autonomy Institute and the CADA Network has prompted warnings that councils have a “sustained reliance” on such companies to carry out basic functions.

The spiralling sums paid to these firms, which hit £555m in 2024 alone, have grown significantly since 2010 after cuts to council budgets in the capital and across the country. In London, councils saw their funding from central government cut by a third after 2010, according to the Institute for Fiscal Studies, while payments to the firms have exceeded £500m in consecutive years since 2022.

The companies provide a wide range of services that can include leasing out software and IT systems to councils, bringing in temporary workers to cover understaffed or underfunded services or providing advice to council officials on various things including budgets and planning decisions.

The overall spend in London comes against a backdrop of a longer-term rise in spending on consultants and outsourcing. Between 2013 and 2023, there has been a 76% rise in average annual consultancy spending per London council, jumping from £11.5m to £20.2m. The report says these spending patterns “suggest systemic, long-term outsourcing of core council functions, not short-term specialist advice”.

Will Stronge, the chief executive of the Autonomy Institute, said: “This research shows how local government capacity has been hollowed out by years of outsourcing and austerity. London’s councils are now structurally dependent on private consultancies for core functions, and that should worry all of us.

“Rebuilding public capability, rather than buying it in at a premium, is the only sustainable route to resilient, democratic local government in the long term.”

Between 2010 to 2024, some companies were paid more than £1bn by London councils. Matrix SCM, a managed service firm that provides a number of services including temporary workers and recruitment and screening software, received contracts worth more than £2.1bn during this period. The outsourcing companies Capita and Serco, which was given contracts for waste management services, were paid £1.1bn and nearly £500bn respectively.

Matrix SCM was previously accused of facilitating an “auctionyourgranny.com”-style system after councils used the firm’s software to put care packages for vulnerable people out to tender in eBay-style timed “auctions”.

Lambeth council paid more than £80m to consultancy and outsourcing firms in 2024, while Barnet spent more than £40m. The latter council became infamous for outsourcing most of its frontline services to Capita in the early 2010s, a decision that was reversed in 2022. Its spending on such firms has nearly halved from the £80m paid in 2014 and 2016.

In 2013, the north London local authority called itself the country’s first “easyCouncil” when it announced it would provide only the legal minimum of services, outsourcing everything else from disability care and highways to planning and procurement to Capita under two contracts worth a combined total of £300m over 10 years.

In 2017, the council was forced to admit its finances were in such a state that the regulator fined Capita. In 2018, a Capita employee working for Barnet was jailed for 62 instances of fraud worth a total of £2m after his crimes were spotted, although the loss was not noticed by Capita or the council itself but by the employee’s own bank. Capita was forced to underwrite the financial loss to the council. That same year, the council admitted it would have to axe services after revealing a financial hole of £62m.

Two years later, a man working at Capita’s offices in Darlington, where pension queries were suddenly redirected after the firm took over this service, was found to have stolen £70,000 from Barnet council’s pension fund. He was given a two-year suspended sentence.

The Barnet resident and blogger John Dix reviewed invoices submitted by Capita. According to Dix, a parent phoning the library to check if a Harry Potter book was in stock was charged by Capita at £8 a call.

In 2022, under a new Labour administration, Barnet council voted to end the mass outsourcing of frontline services, bringing most back in-house, though it was forced to extend its contract with Capita for some services “due to the complexities and scale involved”. Nevertheless, the council has committed to ending outsourcing to Capita by 2026, with one councillor declaring “Caxit means Caxit”.

Capita and Serco declined to comment. Matrix SCM did not respond to a request for comment.

Lambeth council disputed the findings of the report, saying some costs were misattributed. A spokesperson said: “We are committed to providing good quality services to our residents and achieving value for money for council taxpayers.

“The majority of council spending highlighted in this report is inaccurately described as consultancy spending, when in reality it refers to public services such as waste collection and renting properties to house homeless families.

“Given the unprecedented demand in London to house homeless families, we have no choice but to work with private providers when they have available accommodation.

“The number of households in this temporary accommodation increased dramatically due to the national housing crisis, peaking at 4,780 in November last year, but is now falling due to the action we are taking.

“The report also inaccurately describes the cost of hiring agency social workers as consultancy spend. This spend is due to a long-term national shortage of social workers, but we have made big improvements in bringing down agency numbers in recent years.”

A Barnet council spokesperson said: “Barnet council’s use of external suppliers and consultants is limited to specialist areas, such as social care for older residents, or technical support from architects and engineers for capital projects. In relation to outsourcing, the council is on track to end its Capita contract in 2026 having already returned in-house the majority of services that were part of the original arrangement.”