23 August 2010 | Lindsay Clark

Public spending cuts have begun to threaten the viability of UK government suppliers, research has found.

The number of insolvencies among public sector providers has leapt by 47 per cent in the past year, a report from accountancy firm Wilkins Kennedy has found.

Of businesses supplying health and social services, education and defence sectors, 168 became insolvent in the first six months of 2010 compared with 114 in the first half of 2009. Corporate insolvencies as a whole have dropped by 5 per cent in the same period, the study found.

Delayed contracts were the primary reason for public sector vendor insolvencies, said Anthony Cork, director at Wilkins Kennedy. “So far the impact of the government’s austerity drive has been most visible in the slew of profit warnings from listed companies. However, for an increasing number of companies the situation is even worse and they are being forced into insolvency.

“While the real cost-cutting this government has threatened has yet to take place we are already seeing a wide range of companies fail because of delayed contracts.”

Cork said some suppliers could struggle to control overheads as the steadiness of their income during the past decade may have encouraged them to take on higher fixed costs. “It seems inevitable that the public sector spending review in October is going to heap on more pain.”

The study cited building services company Connaught as an example of a firm suffering as a result of the spectre of public spending cuts. It said the company has been the focus of media scrutiny because it is currently in talks with banks over a possible debt-for equity swap.