Given its exposure to government spending, the cuts have particularly important implications for the support services sector, and have dominated a spicy debate surrounding companies' ability to help the public sector generate savings through the introduction of more efficient processes.
In his speech, Mr Osborne certainly echoed this rhetoric, and outsourcers and consultants will be hopeful of more public work. But given the government's past reliance on consultants and their ilk, which according to the National Audit Office hasn't always resulted in sustainable savings, will there really be another torrent of business heading their way?
The outsource of much pain
Ears will certainly have pricked up when Mr Osborne announced that central government savings would double from the £3bn previously announced to £6bn. Some of this is likely to come from asset sales, but the extra £3bn is likely to have something to do with Cabinet Office Minister Francis Maude. Following the June budget, he asked major government outsourcers, Serco and Capita to come up with a realistic departmental savings, to which they responded with possible efficiencies worth £1bn each. If they can deliver these, the government would be foolish not to hand them the opportunity to prove so.
In terms of the detail, Mr Osborne said that the Department of Work & Pensions would seek savings through digital upgrades and back-office applications. This is Capita and Logica's forte, while the announcement that £20bn a year will have to be spent better in the NHS could be promising for Serco in the long run. It's recently become the UK's largest provide of pathology services. The 7.1 per cent cut in local authority budgets will undoubtedly lead to job losses but councils will look to make efficiency savings first. This is the least politically inflammatory policy and will play into the hands of the larger outsourcers who can bundle a number of deals together.
Consult and contrast
Consultancy was canned in the June budget, and if Mr Maude is going to be as harsh as he's previously communicated, then consultants will have to prove they generate value for money. Sadly for them, the National Audit Office published a report earlier this month that said the government is actually not getting value for money from its use of consultants.
But even so, Osborne's announcements look favourable and the available pot is undoubtedly large - approximately £1bn was spent on consultants in 2009-10 by central government departments, with prices usually based on time spent rather than then deliverance of objectives. And luckier still, Mr Osborne said that capital spending will be £2bn more than previously announced. That'll bring forth a sigh of relief for Mouchel, with the largest public exposure in the design and engineering sector.
The £30bn earmarked for transportation infrastructure projects could lead to bid activity among consultants and could be very positive for WS Atkins with its high rail, road and transport planning expertise. Broker KBC Peel Hunt highlights RPS as a UK-listed consultant that should be insulated from the UK’s overall austerity pain and in particular, focuses on the long-term demand for energy, power market security and supply as drivers of business for the consultant.
Boot and recruit
Mr Osborne says 490,000 public sector roles will be axed by 2014-15, many through natural wastage, but PwC reckons an extra 468,000 jobs will also go in the private sector as a result of companies' public sector exposure. So that could mean nearly a million jobs lost over five years. Good news for recruiters? No - there will be fewer jobs to place people in, and job insecurity is likely to reduce the numbers of people moving jobs.
The Trades Union Congress reckons that 2.2m private-sector jobs will need to be created to get the labour market back to pre-recession levels if a 10 per cent reduction in public sector employment is introduced. But private sector employment growth has averaged just 0.7 per cent each year over the past decade, implying it could take up to 14 years to fill the void. The UK’s largest recruiter, Hays has the biggest revenue exposure to the UK public sector and its shares are likely to suffer the greatest amount as a result. The price was down 4 per cent even before George Osborne started speaking. Robert Walters has the greatest diversification overseas and by sector, so investors are likely to buy these shares rather than Hays or Michael Page.
