The Department of Health and Social Care has been directed to produce detailed plans for reducing its dependence on private external contractors, in what amounts to one of the most explicit insourcing mandates issued to a central government health department.

Under the directive, DHSC leadership is required to map all ongoing services, IT systems and administrative functions that rely substantially on third-party suppliers, and to set out a credible timetable for migrating those services into direct civil service management. The plans must include risk assessments and logistical frameworks sufficient to demonstrate that the transition will not disrupt continuing health operations.

The move reflects pressure across Whitehall to get a grip on contractor costs. In July 2024, the government set targets for savings on consultancy spending, including an immediate stop to all non-essential spending and a target to halve overall expenditure on consultants in 2025-26. The government has said the cumulative measures could save £1.2 billion by 2026, with departments already expected to have delivered £500 million of savings in the preceding financial year.

However, it has been challenging to confirm those goals. The Public Accounts Committee warned in March that the government was currently unable to deliver on its strategic objective to reduce consultant spending, and raised doubts about whether the Chancellor's pledge to halve such expenditure in 2025-26 could be shown to be effective. Part of the problem is definitional: departments often hold large contracts that combine consultancy and professional services, making it difficult to isolate spending on consultancy alone, and raising the possibility that some bodies may be reclassifying rather than genuinely reducing expenditure.

For DHSC, the challenge is particularly acute. The department has historically drawn on external contractors for specialist capacity across digital infrastructure, strategy and operational delivery; functions that require sustained technical expertise rather than occasional advisory input. Replacing that expertise with permanent civil servants demands not just recruitment but investment in training, knowledge transfer and retention, at a moment when the wider civil service is operating under its own headcount and pay constraints.

The directive requires DHSC to confront a tension that applies across government but is felt especially sharply in health: the short-term cost of transition versus the projected long-term savings of an in-house model. Outsourcing contracts that took years to negotiate and embed cannot be wound down overnight without risk to live services. Any plan that fails to account adequately for that friction is unlikely to survive scrutiny from the Treasury or from parliamentary committees.

Government guidance on insourcing acknowledges that public sector bodies will need to identify gaps in capability, capacity, skills and culture before any transition can be made to work, and has indicated that sourcing strategies should form the basis of any shift away from external providers rather than piecemeal contract decisions.

The DHSC directive sits within a broader restructuring of the department itself. In March 2025, the government announced plans to absorb NHS England directly into the Department of Health and Social Care, a merger that is expected to take two years and will substantially expand the department's operational scope. That integration will itself generate demand for the kind of project management and systems expertise that has traditionally been contracted out, making the insourcing mandate harder to execute at precisely the point when the department faces its greatest organisational transformation in decades.

Whether DHSC can produce a credible plan that satisfies ministers' cost-reduction expectations while managing the genuine risks of service disruption will depend on the quality of its contractor audit and the realism of the timelines it sets. The PAC has called on the Cabinet Office to publish a workforce plan by May 2026 that includes an assessment of the skills gaps across government that currently require external resources, a document whose findings will bear directly on how ambitious any DHSC insourcing timetable can realistically be.