Title

Public sector outsourcing is likely to become less attractive to private firms as spending cuts hit hard, a top City executive has warned. Chief executive of education and support services firm VT, Paul Lester, warned the end of public spending increases meant once-lucrative contracts had become more hazardous. He highlighted plans to cut £9bn of costs from Whitehall departments' spending by 2012 and the Government's massive borrowing commitments as evidence that the big players in the service sector would have to rein in expectations. Mr Lester said: ‘There will be more opportunities – but there are threats out there too. All this comes with a health warning. There could be cutbacks as well.' VT, which originally started as shipbuilder Vosper Thorneycroft, before diversifying, has contracts for education services and as a support arm of the Metropolitan Police. The firm has developed into a significant presence in the sector and the expected £300m raised from the sale of its shipbuilding arm is likely to help it challenge the likes of Capita and Mouchel. Currently, the public sector outsourcing market is worth £80bn, but pressures on the public purse will eat into the margins of the major players. Mr Lester warned simply cutting headcount as a way of delivering efficiency to government – and profit to shareholders – would not work. He said: ‘Because we deal in long-term contracts, we can only deliver if we invest in people. ‘One has got to do more than just tell them you'll take their crap for less money.' He predicted the spending cuts would be an issue for the medium term as the wider trend for government outsourcing would continue. ‘There is going to have to be a real crunch after the next election. Whoever is in power will have to get government more efficient,' he said.

Title

BUSINESS

Outsourcing 'losing appeal' says expert

SUBSCRIBE TO CONTINUE READING