The demise of social housing administrators Connaught appears to be partly due to a variety of internal management decisions, that in retrospect look at least questionable. But the company have also pointed the finger at the public sector cutbacks.
However much that is true in this case – rather than just an excuse - it certainly gives us a sharp reminder of what all these cuts are going to mean in the real world. Connaught will not be the last private company dependent on public sector work to go under.
It is all a little bit ironic. Over the years, for good reasons, much of the old work that councils and other public sector bodies did was moved from in-house to the private sector. By and large they did it pretty well.
But now the public sector is in trouble and so it is squeezing these same suppliers very hard, to the extent that some will find the pips can be squeezed no more.
You don’t have to ask around very much to find councils and other public sector bodies demanding overnight cuts in costs of contracts of 25% or more, of providers who feel they have to go with it but have no idea how they will provide the service in the future - and of sub-contractors who know they will be caught up in all this but are helpless to do anything about it.
How this plays out in the provider market is anyone’s guess. Some of the stronger providers are likely not only to weather the storm but thrive and hoover up contracts as potential rivals go to the wall. After the crisis we may find ourselves with a more mature provider market with the flakier companies gone. Or we may find ourselves with an oligopolistic market where prices can be bid up and the public sector cannot obtain good value for money.
The fate of Connaught is tragic for those who will lose their jobs and for users anxious about who will now deliver their services. But is also one of the first tangible outcomes of the forthcoming spending squeeze.
Dan Corry is a writer and consultant on public and economic policy. He was senior adviser on the economy at Downing Street from 2008 to 2010.
