News of large-scale job losses in the City, with analysts pointing to the worst employment downturn since the dotcom crash, suggests the days of healthy year-on-year increases in IT budgets may soon be a distant memory. And reports of IT consultancy services being cut and technology budgets increasingly focusing on maintenance work, rather than new implementations, do not augur well for the future health of the IT industry.

But offshore software and services providers are producing relatively strong financial results. If the use of offshore facilities becomes more popular among private-sector organisations in the face of reduced budgets, then the public sector might be pressured to follow suit.

Recent figures from Compass Management Consulting show that public-sector outsourcing contracts are 75 per cent above the going market rate. Possible causes for this include a lack of contract management skills and poor guidance from the Office of Government Commerce. Another reason is that going for the lowest-cost outsourcing option invariably means transfering work offshore, which is not something any government likes to encourage.

The government will no doubt be keen to continue employing UK technology professionals, but with the private sector adopting a very different strategy in the new economic climate, the flow of technology work to offshore service providers might be difficult to reverse.