Cuts to local governments could push outsourcing firms into administration

Marion Dakers
LOCAL government will bear the brunt of some of the harshest cuts in the entire spending review, prompting one expert to predict the collapse of a number of companies that rely on outsourcing work.

The department of communities and local government will see its day-to-day spending cut by 33 per cent in real terms over the next four years, and capital spending slashed by 74 per cent to from £6.8bn to £2bn.

Meanwhile, the overall cash handed down from central to local government will fall by 26 per cent in real terms, from £29.7bn to £24.2bn.

KPMG’s head of local and regional government, Iain Hasdell, said: “As local government gets smaller and poorer in cash terms, those organisations in its supply chain will experience many difficulties finding alternative contracts. Several financial collapses of companies and organisations within this supply chain will result over the near term.”

Outsourcing group Connaught, which had contracts for services from social housing maintenance to grass cutting, has already folded.

Chancellor George Osborne said yesterday that fire, police and schools services would be ring-fenced from local government cuts.

“Town halls will now face extremely tough choices about which services they can keep on running,” said Baroness Margaret Eaton, chairman of the Local Government Association.