Business

Big Four accountancy firms shed UK staff after pandemic hiring boom

‘Overhiring’ in some areas has led consultancies to make job cuts, say recruiters and analysts

Deloitte blamed slowing growth and economic uncertainty as it announced plans for 800 job cuts in the UK earlier this month.

Mon Sep 25 2023 - 13:06

When Deloitte cautioned staff earlier this month that it planned to cut about 800 jobs in the UK, it blamed slowing growth and economic uncertainty.

The warning only added to a sense of gloom about the prospects of the Big Four accountancy firms in the UK, with three of them planning at least some job losses and redeployments.

But cuts at the Big Four – which include EY, KPMG and PwC, as well as Deloitte – reflect something more complex than a simple slowdown in growth, according to people involved. Recruiters and analysts said the need to shed staff partly reflected excessive hiring in the wake of the coronavirus pandemic.

It was also the result of a slowdown in staff leaving the big consultancies, as higher interest rates and greater wariness reduced outside opportunities, they said.

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That means the cuts might not – so far at least – spell the start of a period of prolonged doom, experts said. James O’Dowd, founder of Patrick Morgan, a recruitment consultancy, said the Big Four essentially had too many staff in some areas.

“The dynamic is relatively clear: they’ve overtired,” he said.

Fiona Czerniawska, chief executive of Source, an adviser on the professional services industry, said the current era was similar to the aftermath of the dotcom boom two decades ago. The challenge then was to shed excess labour to match demand that, while still growing, had not kept up with the breakneck pace of firms’ hiring.

“The market is still growing,” she said. “Clients’ demand for external help is still strong.”

Andrew Errington-Thomas, chief executive of Consulting Point, another specialist recruiter, said demand for consultants in some other parts of the world remained buoyant, meaning there were opportunities for those prepared to move.

“The UK is definitely behind other areas – quite significantly compared with, say, the Middle East,” Mr Errington-Thomas said.

The slowdown in UK demand is far more marked in some practice areas than others. Rising interest rates and growing economic uncertainty have, for example, sharply reduced the amount of merger and acquisition activity, reducing demand for specialists in issues such as company integration.

Meanwhile, data from Consulting Point showed demand to hire consultants for financial services roles was growing at a relatively modest 13 per cent year on year. Demand in energy consulting – boosted by the transition to low-carbon technologies – is growing at 35 per cent, while growth in digital consulting is running at 31 per cent.

This means firms are taking a discerning rather than scattergun approach to cutting jobs. EY has focused its UK cuts entirely on its financial services practice, saying it plans to reduce the practice’s 2,300 staff by 5 per cent.

“We continually assess the resourcing needs of our business and, in some parts of our business, we are consulting on proposals to align current resourcing requirements with market demand,” the firm said.

The firm added, however, that it planned to create 1,000 new jobs over the next five years in Northern Ireland.

Richard Houston, chief executive of Deloitte UK, stressed when announcing the planned redundancies that it was undertaking a “targeted restructuring”. The firm will mainly target jobs in consulting and its financial advisory and risk advisory businesses, the Financial Times previously reported.

But Source’s Ms Czerniawska said growing specialisation meant that one traditional response to market cycles – moving people between practices – was growing more difficult.

“Professional services has become a much, much more specialised market,” she said. “So you can’t just take someone from human resources consulting and say, ‘go out and do cybersecurity’.”

KPMG has had some success in moving consultants between practices, according to a person familiar with the firm’s plans. It has also launched a targeted redundancy exercise aimed at cutting 125 staff – 2.3 per cent of UK consulting staff.

The person added that KPMG’s issues arose partly from a decline in the consultant “attrition rate” – the number leaving the firm each year. The drop, which sector watchers attribute to the decline in alternative options for consultants, has led to excessive growth in staff numbers because hiring plans were designed around higher anticipated rates of departure.

KPMG declined to comment publicly.

Figures from Consulting Point show the average attrition rate at Big Four firms declined from 21 per cent annually four years ago to 18 per cent a year ago and 19 per cent at present.

Patrick Morgan’s Mr O’Dowd estimated the fall was still sharper – from a range of about 30 per cent in the immediate aftermath of the pandemic to mid-teens at present.

“That’s thousands of people more than they thought,” he said of the effect on overall staff counts.

Yet, according to observers, consulting markets continue to grow healthily in many areas. That creates the risk that excessive cuts might leave firms with too few staff in an upturn.

Ian Elliott, PwC’s chief people officer, pointed to that risk, saying his firm’s focus was on “stable growth and investment for the long term”. PwC is not at present planning any significant job cuts.

“The outlook can change quickly and if you always react, or react too soon, you risk being caught short when demand rises,” Mr Elliott said.

Ms Czerniawska echoed his point. Firms would want to be “incredibly careful” about how they cut consultant numbers, she said.

“This is a market that can recover very quickly indeed,” she added. – Copyright The Financial Times Limited 2023

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