Pressure grows on firms reliant on public spend

25 January 2011
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25 January 2011 | Angeline Albert  

The sectors most exposed to UK public spending cuts have suffered a 24 per cent rise in the number of firms in financial distress.

Suppliers in construction, IT, recruitment, advertising and business services have been the most negatively affected by the government’s public sector cuts, according to business risk specialist Begbies Traynor.

Its quarter four 2010 results show 61,534 firms in those sectors are in financial difficulty, up from 49,756 businesses the previous quarter. According to results published yesterday, this increase was particularly evident in the IT (up 27 per cent), business services (up 25 per cent) and construction (up 21 per cent) sectors.

Ric Traynor, executive chairman of Begbies Traynor, said: “With the full implementation of budget cuts only starting to show through in these figures, public sector exposed industries are likely to face significant increases in the level of corporate failures over the course of 2011.”

The UK also witnessed a 20 per cent rise in the number of companies from all sectors facing significant or critical financial problems this quarter. Some 147,836 UK firms experienced significant or critical financial problems in quarter four, up from 123,361 businesses in quarter three.

Traynor said these higher levels of distress could mean insolvencies rise by 10 per cent to 23,500 in 2011 due to the impact of public sector cuts, the gradual unwinding of government support measures and a hardening of creditor attitudes. 

SMEs could be particularly badly hit, he said. “For smaller businesses, we are entering the darkest hour before the dawn; as they face the dual challenges of weak domestic demand and greater pressures from larger competitors and business customers looking to preserve their own profitability. As such, it will be smaller businesses that bear the brunt of an increase in formal insolvencies.”

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