Businesses Fear Effect of Public Sector Cuts on Turnover

Research by ICAEW has revealed that nearly half of businesses (45%) anticipate the public sector cuts will have a negative effect on their turnover in the next twelve months. Of those that directly supply the public sector, this rises to 68% of firms. Many will be looking at a variety of measures to help counteract the negative impact of cuts on their business.

Michael Izza, ICAEW chief executive, said:

“There has been an expectation that business will be able to ‘pick up the pieces’. This includes hiring those who have been made redundant in the public sector as well as providing the impetus to ensure that the UK economy returns to growth. What we are seeing is in fact companies being impacted by the cuts as well as all the other pressure points that currently exist.”

The private sector is a supplier to the public sector in many forms. Services, materials or equipment are provided by firms of all sizes and from all industries. They work either directly or indirectly with government organisations, national and local. Many of these relationships are under threat or will be terminated owing to the public sector cuts.

These cuts have already had an effect. In the last year, 21% of all businesses have seen a fall in business turnover as a result. This increases to 42% of companies who directly supply the public sector. Small and medium sized enterprises (SMEs) have experienced a greater decline in turnover compared to larger companies. Of those affected, 56% have seen turnover fall by over 5%, compared to 40% of large firms.

In response to this businesses are adopting a range of measures. This includes seeking new customers (78%), reducing the number of permanent staff (47%), renegotiate supply contracts (45%) and reducing temporary or contract staff (36%).

As the public sector cuts begin to come through, additional companies believe they will be affected in the future. Nearly half (45%) of all companies think they will have a negative impact on business turnover in the next twelve months. Of those who directly supply the public sector this increases to 68% and of those who supply indirectly, 59% believe that turnover will fall.

Businesses in the construction sector are particularly exposed with the likes of the ‘Building Schools for the Future’ scheme being scrapped. Seventy percent (70%) of construction firms believe the public sector cuts will impact on their organisations turnover in the next year. Over half of Business Services (53%) and Retail and Wholesale (52%) companies are also expecting a negative impact.

Further information can be found in the ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).

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