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SMEs most at risk from public sector cuts warns Begbie Traynor

Microscope contributor

Public sector spending cuts will be a hammer blow to the fragile recovery of some small IT firms as the government turns to larger listed or global corporate giants that have the economies of scale to offer cheaper goods and services.

This is according to business rescue specialists Begbies Traynor, armed with figures which reveal that despite a 15% fall in the number UK companies in "significant" or "critical" financial stress during Q2, 6036 remain in trouble - a historical high.

The government recently froze all new IT spending over £1m and plans to review the costs of all existing contracts, creating another "period of great uncertainty," said Nick Hood, partner at Begbies Traynor.

"One feature of cost cutting in the public sector is a migration of work to large, specialist IT contractors who can offer significant economies of scale compared to stressed central and local government departments, who are being forced to make substantial savings," he said.

"This gain for major listed and international IT contractors will mean great pain for many small local service providers, who may see long-established business relationships damaged or destroyed and their survival threatened," he added.

Should the UK manage to avoid a double dip recession, a "twin track economy" could be the result with industries such as IT that rely on the public sector facing higher level of company failures than those less impacted by the spending cuts.


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