Monday, 24 November 2008

Public v Private Sector SITS Spend

(By Richard Holway) The FT today carries the headline Jobs boom since 1998 ‘fuelled by public sector’. It concludes “The ONS's flagship survey shows that 1.3m of the total jobs created were in health, education, social care and public administration, implying the rate of job creation was twice as fast in the parts of the economy dominated by public sector money than in the rest of the economy”.

Back in 1997, when Labour came to power, the Holway Report at the time showed that 19% of UK SITS spend was from the Public Sector. The and Y2K booms actually saw that fall to 17% by 2000. But since then, the public sector has certainly been the lifebuoy of the SITS sector. Public Sector spend now accounts for over 30% of all UK SITS spend. See Chart below.

Just as for jobs (see ONS above) Public Sector SITS spend has had an average growth rate of around twice that for the Private Sector since 2000. The ‘problem’ is that the latest figures (UK public sector S/ITS market size and forecasts published by Ovum in Nov 08) from the well respected public sector team at Ovum (well they are the last remaining Holway team members!) show that the growth in public sector spend will reduce fairly significantly from now on – from 6.3% in 2008 to ‘just’ 3.3% in 2012.

As its author, Georgina O’Toole, says in the introduction to the report “So far this decade, the UK public sector S/ITS market has been riding on the crest of a wave thanks to numerous major IT infrastructure programmes. But, with those programmes reaching maturity, suppliers will need to find new sources of revenue growth. Unfortunately, future growth will not be as easy to come by; major new outsourcing programmes are likely to be the exception rather than the rule, with most contract tenders relating to 'second-generation' outsourcing contracts. To achieve above-average growth, S/ITS suppliers will be looking to grab market share from competitors as contracts are re-let. However, they will need to work hard; government clients will still be looking to find efficiency savings and, second time around, will be far savvier at putting in place commercial terms offering them more value and with lower risk.”

Today we await Alistair Darling’s Pre Budget announcements (it sounds more and more like a real Budget to me). I recently asked John Suffolk (the Governmemt’s CIO) if he thought Public Sector IT spend would benefit from any new spending initiatives. He thought that highly unlikely. Indeed, it might well be cut in favour of other schemes more likely to boost local employment (like building). Afterall further pressure on public sector IT budgets are more than likely to drive more contracts offshore – rather than creating new IT jobs in the UK.

If UK SITS is going to find the Public Sector more difficult, is it likely to get a fillip from the Private Sector? I somehow feel readers could answer that question themselves.

Batten down the hatches.

No comments: