The UK is now in its third year of a deficit reduction plan and today’s budget has shown that the hard work continues for the public sector. It faces further budget cuts, expected to release a total of £2.5bn that will be earmarked for capital growth funding. While some budgets are ring-fenced (health, education and overseas investment, with the police and Ministry of Defence (MoD) seeing their budgets frozen) overall most departments now have to face further cuts to their budgets in the region of 1%; those that have under-spent will lose the surplus. Striving to exceed their efficiency targets doesn’t necessarily mean any let up in the pressure to find savings.
Despite this we expect to see more work in releasing efficiencies resulting in a changing vendor landscape and a continued move away from old guard of suppliers. Despite the significant challenge of budget cuts, in 2012 Ovum’s IT Services Contracts Analytics showed an increase in total contract value (TCV) spend on 2011 of 7%. However, this was still far below levels seen in the halcyon days of the public sector megadeal, between 2003 and 2005. Then, contracts such as IBM at the Department for Environment, Food and Rural Affairs, Capgemini at HM Revenue and Customs and HP at the Department for Work and Pensions and the MoD helped to boost average annual TCV to over $17bn, roughly three times the spend seen last year.
So while for some a significant reduction/revision in spend has been all too apparent, the market is not entirely flat, and opportunities exist. Expect streamlined and more concentrated spend brought through single supplier registration for procurement, the planned changes in governance beginning with the Government CIO role being scrapped, and a stronger push to becoming a Digital Civil Service.
Furthermore, healthcare reforms and proposed greater integration with services such as social care will have far reaching implications. With a funding shortfall looming in light of increased demand on the NHS, commissioners will be casting a sharper eye on return on investment (ROI) and both the ability of suppliers to work effectively together and whether or not they ‘get’ the shift to a more patient-centric service delivery model. These factors, combined with the government’s push towards ensuring SMEs gain a greater market share of public services will create a critical point for change and opportunity in the market.
Outside of Whitehall, the agenda to take growth beyond the M25 and stimulate the economy in the rest of UK is probably the most promising development to come out of the budget. A single pot for regional investment, as well as an increase in devolved resources could stimulate innovation and encourage change. If local government has greater autonomy over funds then it can plan more effectively over a four or five-year period, creating more of a “spend to save” culture and reducing the need for the tactical cost savings approach to which many have had to resort. This will also underpin and support smart city agendas as local councils and city leaders take steps to support local economies and foster growth in SMEs and other, non service-based, industries.