Government suppliers, including defence companies, appear to already be suffering as a result of public spending cuts, according to accountants Wilkins Kennedy.
The number of insolvencies among defence, health & social services and education suppliers to the public sector was 168 in the first six months of this year compared with only 111 in the same period of 2009. This is despite insolvencies overall being five per cent lower in 2010 than in 2009.
Anthony Cork, Director at Wilkins Kennedy says insolvencies are beginning to creep in among “the slew of profit warning” since government first announced its austerity measures. Although any real cost cutting is yet to take place, delayed contracts are causing firms the most headaches at the moment.
“The public sector has seen tremendous growth over the past 15 years and the private sector ecosystem that surrounds it has expanded along with it. Supplying to the public sector has been seen as safe and steady, unfortunately that is no longer the case,” says Cork.
“Those companies that have become too dependent on the public sector – be they in recruitment, outsourcing, construction or marketing services are beginning to feel the pain. It is not just the actual cost cuts that are causing problems but the delay by public sector bodies making spending decisions.”
Cork says it is likely that firms that supply to the public sector will have taken on higher fixed costs because of the steadiness of their contracts when supplying government and this will make it hard for them to maintain margins when switching to private sector supply.
The next Public Sector Spending Review is scheduled for October.