Almost 10 per cent of the UK’s small businesses fear they could be pushed into insolvency if they lose their public sector contracts, according to new research.
Ahead of the Government’s spending review, insolvency trade body R3 said almost one third of small firms described themselves as “reliant on contracts form the public sector,” and as many as 148,000 could go under if their public sector work dried up.
R3’s Midlands chairman Matthew Hammond, who is also a partner at PwC, said the figures were looking at the worst case scenario.
“To put these figures into context, business failures ran to 26,000 for the whole of 2009,” he said.
“Despite the Government’s strong message of frugality in Birmingham last week, it is highly unlikely that the majority of public sector contracts will be withdrawn and the figure of 150,000 business failures is at the extreme end of the scale.
“Yet, with the prevalence of small businesses in both the East and West Midlands and an increasing reliance on public sector contracts dating back to the 1990s, these cuts are likely to be felt extremely keenly.
“Businesses need to be aware of this risk and seek professional advice before this reliance on public sector work threatens their survival.”
The R3 research findings also indicate that just under a quarter - 24 per cent - of all small businesses would see their profit reduced if their public sector contracts were pulled, while16 per cent - or 253,000 businesses - would be unable to fund expansion.
Around one in seven businesses - 14 per cent or 216,000 businesses - would consider job losses, while over one in ten - 11 per cent or 173,000 businesses - would be in serious financial trouble.
Mr Hammond added: “These results suggest that a significant proportion of small businesses relying on Government contracts are going to struggle to fund expansion and modernise.
“They have already drawn heavily on their reserves to survive the recession and they will be unable to compete in the market as the economy grows.
“This comes against a backdrop of corporate insolvency figures being kept down by HMRC’s Time To Pay agreements and historically low interest rates.”