IT suppliers will lose £3.7bn in government spending review - PwC

PricewaterhouseCoopers has predicted that IT suppliers in the private sector are set to lose a total of £3.7 billion in revenue a year as a direct result of the government’s impending spending review.

More specifically, computer service suppliers are expected to lose £2 billion in revenue, while the machinery and computers sector will lose £1.7 billion a year by 2014/15, as a knock-on effect of cuts expected to be made in the public sector.

Tola Sargeant, research director at analysts TechMarketView, said that PwC’s predictions were broadly in line with its own forecasts. TechMarketView said that its draft forecast was that private sector IT software and service suppliers alone would lose £1.3 billion over 2010 and 2011.

“The numbers we have are for software and IT services, and it’s hard to say whether their [PwC’s] definition is broader, but we are an agreement that there will be a significant impact [from the spending review] on the private sector market,” said Sargeant.

She added that TechMarketView expects the bulk of the cuts in the public sector to be in central government, more than local government.

While she expects health IT suppliers to also suffer significantly, Sargeant said that this would be a consequence of delays over the remainder of the National Programme rather than major cuts. In contrast, education “still has some money being filtered through to IT suppliers”.

The figures were produced as part of PwC’s ‘Sectoral and regional impact of the fiscal squeeze’ report, in which PwC said that the private sector gross output could be reduced by around £46 billion per year by 2014/15 due to the impact on suppliers to the public sector.

In addition, the consultants predicted that almost half a million private sector jobs could be lost as a result of the cuts. A breakdown for IT jobs was not available.

Despite these predictions, PwC said it was not necessarily all bad news.

John Hawksworth, chief economist at PwC, said: “Predicted levels of public and private sector job losses will be a drag on the pace of the economic recovery, but should not derail it altogether.

“While private sector employment may be affected as much as the public sector, this could be mitigated by increased labour market flexibility on wages and hours worked, as we saw in 2008-9 recession.

“Although the recovery may not be as strong this time as in the 1990s, we would expect at least some rise in private sector employment over the next five years despite the fiscal squeeze.”

PwC also believes that in contrast to many sectors, the outsourcing sector will thrive.

“A sector likely to see growth opportunities from spending cuts is outsourcing, and not only in back office services. Government and public sector organisations will look to reduce their non-core and fixed cost operations by increasing the use of private and voluntary sector organisations for the delivery of front-line services.

Separately, a job market trends survey released by CBI and recruitment consultancy Harvey Nash, ‘Gearing up for growth’, has some good news for IT workers. The survey covers 330 senior executive respondents from businesses of all sizes and sectors in the UK.

According to the survey, 81 percent of firms in the IT, hi-tech and science sector said that recruiting to key vacancies would be a top three priority in the coming months, and none of the respondents in this sector were planning a recruitment freeze over the next six months.

Furthermore, employers, particularly in this sector are most likely to recognise the benefits of having a flexible workforce, with 89 percent providing remote working opportunities.

Copyright © 2010 IDG Communications, Inc.

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