Newspaper article The Journal (Newcastle, England)

Spending Review Will Benefit Some

Newspaper article The Journal (Newcastle, England)

Spending Review Will Benefit Some

Article excerpt

Byline: SHARE WATCH

AMONTH ago Chancellor George Osborne announced the Comprehensive Spending Review in order to reduce public spending by pounds 81bn.

Budgets are to be slashed by up to 40% across Government departments and it is estimated that around 490,000 public sector jobs will be lost over the next four years.

Sweeping reforms will be made to the welfare system as well as big changes to social housing.

The stock market's initial reaction was muted, as the measures were so widely expected.

Overall, we think that the spending review was positive for the support services sector. A number of companies have recently signed a memorandum of understanding with the Government to deliver cost savings on existing contracts.

The Government appears to be sticking to its principle that services paid for by the Government do not necessarily have to be delivered by the Government. This will help pave the way for new contracts to be awarded and opens up opportunities for innovative and cost-effective solutions for delivering public services in the future. Capita, Serco and Carillion may be particular beneficiaries.

Capita is the UK's market leader in the outsourcing of white collar business processes. It specialises in running non-core back office activities for its clients, ranging from payroll to pensions. Revenues are split roughly 50:50 to the private and public sectors with local government making up the largest part of revenue in the public sector.

It was announced in the spending review that cuts to central Government administration would be around pounds 6bn, double what was originally promised.

The decision to spend an additional pounds 900m on fraud and tax evasion measures to save pounds 5bn per annum is also positive for the group. In addition, the simplification of benefits to one single tax credit is another major opportunity for Capita, although it is likely to face stiff competition from its rival, Serco. …

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