Was it only a few weeks ago that we were warned to expect a ‘bonanza’ for public sector outsourcing firms? Well, it certainly doesn’t look that way any more.
The demise of the Connaught housing group and the threat of more than 4,000 job losses clearly shows that public sector cuts are already affecting private sector suppliers. Connaught, which has 150 social housing contracts, called in the administrators after a number of councils decided to defer their capital projects.
As Dan Corry points out on the PF blog, Connaught is not the first and won’t be the last outsourcing company to feel the painful impact of the spending axe. Schools IT firm RM Group recently claimed that contracts worth £200m are at risk, while telecommunications provider Cable & Wireless Worldwide issued a profit warning blaming the impact of the cuts.
Local government minister Bob Neill, speaking to PF at CIPFA’s ‘Facing the Cuts’ summit (see 'Connaught collapse ‘not linked to spending cuts’, says minister'), said there were individual circumstances in the Connaught case and we should not infer a wider malaise. But the funding squeeze – estimated to be 33% a year in non-protected areas by 2014/15 – will inevitably have ramifications across the economy.
Coalition ministers have talked tough on deficit reduction and we await a painful Comprehensive Spending Review on October 20. But the concern is that public bodies will be spooked into a scorched earth policy that destroys essential services and pushes the UK into a double-dip recession.
According to the Institute for Fiscal Studies, current government policies imply the longest and deepest sustained period of cuts to public service spending since the Second World War. We are entering unknown territory, where slash and burn might be the order of the day.
It’s not just the usual suspects – TUC general secretary Brendan Barber (see 'Turning off the taps, by Brendan Barber') and Labour leadership contender Ed Balls – who fear the worst. Boris Johnson, London’s Conservative mayor, has warned that there could be a serious downturn at the end of the year and, if so, the coalition would inevitably ‘cop the blame’.
The TUC’s assertion, on the eve of its annual congress, that the cuts could become the coalition’s poll tax might be wide of the mark. As Barber himself points out, the government currently has the support of the majority of the public.
But opinions can change quickly. And the more the effects of deficit cuts are felt in the wider economy, the less confident ministers can be of carrying the public with them.
