City Comment

23 June 2010

The emergency Budget lays out the immediate austerity plans of the new government. However, despite its painful nature (for which we have been well softened up of late), this was much more about setting the future path with far greater cuts and changes still to come in the way the public sector does business. The real carnage will emerge with the autumn spending review, especially in defence.

While detail remains elusive, MoD spending is expected to be substantially reduced with material impact on defence contractors - important clients for many recruiters. Likewise, local and central government will cut widely with few cost centres spared. It won’t all be job cuts but from a six million workforce (half in NHS and education) and many more private sector jobs dependent, material losses are unavoidable. The big picture is self-evident - long-lasting with no quick fix.

Meanwhile, as public expenditure sinks downwards the private sector will need to swim very hard to keep UK plc’s head above the water. Just as well that manufacturing, with the help of a weak pound, is in recovery and business investment has finally increased. Just on cue, the UK temporary workforce has now risen 55,000 or 3.8% in the past quarter and, despite a rise in the wider unemployed, jobseeker claimants have fallen 6% over three months.

While recruitment enjoys this welcome early cycle recovery seen now in some sectors, for those with high exposure to public sector the party spirit is absent. For some months now reports of 20%+ cuts in temporary demand together with permanent hiring freezes have impacted heavily on suppliers. Already Hays has signalled that support & financial, along with property and construction workers, are the initial losers as many government sectors make pre-emptive cuts. It can be difficult to pinpoint opportunity amidst all these likely risks.

Yet share prices can tell a story and the strong performance afforded by the markets to out-sourcing giant, Serco, in contrast to many recruitment shares, points one possible way forward. While outsourcing, as a potential cost-saver, remains high in the public sector consciousness, there is heightened interest in recruitment managed services despite quality issues in candidate-short sectors.

While outsourcing, as a potential cost-saver, remains high in the public sector consciousness, there is heightened interest in recruitment managed services despite quality issues in candidate-short sectors.

Regardless, ever newer ways of streamlining services and suppliers will be sought. Navigating through the maze of RPO, neutral and master vendor models, together with tier suppliers, will reveal both winners and losers and 2010 financial performances will reflect both.

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