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Fears that spending cuts will hurt businesses

Fears that spending cuts will hurt businesses

Category: Business

Updated: 13/09/2010
First Published: 10/09/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It is feared that as many as a tenth of the UK's small businesses could be pushed into insolvency should they lose their public sector contracts.

Firms up and down the land are bracing themselves against the prospect of contract losses, as part of the Government's drive to reduce costs.

In this week's case of the Connaught collapse, much of the company's problems were blamed on local authorities deferring spending on contracts

Research conducted by R3 found that one third of small businesses described themselves as reliant on contracts from the public sector, and that 10% would face an uncertain future if they were affected by cuts.

A worst case scenario could see some 148,000 firms go to the wall. To illustrate the potential size of the problem, business failures ran to 26,000 in 2009.

R3's president, Stephen Law, said that it is highly unlikely that all contracts would be cut and that the possibility of almost 150,000 businesses being declared insolvent would represent a worst case scenario.

"Yet with the prevalence of small businesses in the UK and an increasing reliance on public sector contracts dating back to 1990s, these cuts are likely to be felt extremely keenly," he added.

"Businesses need to be aware of this risk and seek professional advice before this reliance on public sector work threatens their survival."

The research also found that a quarter of small firms would see their profits fall if their public sector contracts were pulled, while 16% would be unable to fund expansion, putting their long term prospects in question.

Worryingly, 14% said they would have to consider laying off staff, while 11% admitted they would be facing serious financial difficulties.

If your business is in a slightly better position, you may wish to consider investing some funds into a business account.

The Moneyfacts.co.uk Business Best Buy tables are a good place to start. Moneyfacts business account Best Buys help you to find the most competitive business current accounts, deposit accounts, business fixed rate bonds and commercial mortgages on the market today.

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