Big Companies to Be Affected by Public Sector Cuts

Jack Humphrey, Regulatory journalist
August 10, 2010 /

The UK government has decided to cut down all discretionary spending on public bodies over the next five years as it plans to save 113 billion pounds. This step is going to hit hard the companies which rely heavily on public sector contracts.

It has been estimated that the largest companies of United Kingdom could lose approximately 148 billion pounds. According to Oxygen Finance the 100 FTSE companies could be deprived off 10 percent of their value. David Brown the CEO of Oxygen Finance stated that it was disheartening to see businesses declining rapidly after the government announced its decision to make cuts in the budget. He stated that the reaction was alarming as it was only a month since the announcement had been made.

It has been asserted that such drastic and severe cuts would increase the burden of financial crisis and would double the effect of the recession. It has been pointed out that it would also adversely affect the other sections of the economy.

Another apparent effect of this cut is on the buyer-supplier relationship. The suppliers have become apprehensive and as result are putting more pressure on the buyers. The suppliers have become more demanding as they fear of not getting paid by the buyers.

Government’s measures have left the companies nervous. The first company to get the blow was Cable & Wireless with 350 million pounds being taken off its value. The company was forced to announce a ‘shock profits warning’ due to the dearth of public sector deals.

The government has been asked by various organizations to review its policy regarding the cut on public spending as it is increasing the burden for most of the companies at the time of global recession.

 

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