150,000 companies face collapse if public sector contracts go: R3

150,000 small businesses face insolvency if their public sector contracts are cancelled, the trade body for the insolvency profession has warned.

According to research by R3, almost 10% (or 148,000) of small businesses fear they could collapse if they lose their public sector contracts.

In the backdrop of business failures hitting 26,000 for the whole of 2009, this ‘worst case’ scenario would result in a surge to current levels of corporate insolvency.

R3 President Steven Law said: "It is of course highly unlikely that all public sector contracts will be withdrawn and the figure of 150,000 business failures would represent a worst case scenario.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."

One third of small businesses describing themselves as ‘reliant on contracts from the public sector’.

The research also found that 11% (or 173,000 businesses) would be in " serious financial trouble" if their public sector contracts were pulled. 24%, or 377,000 businesses would see their profit reduced. 16% (253,000 businesses) would be unable to fund expansion. 14% (216,000 businesses) would consider job losses.

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

"We have just seen the recent case of the Connaught collapse, blamed on local authorities deferring spending on contracts after cuts."

Further reading:

Business insolvencies to surge from public sector cutbacks

Public sector finance arms struggling before spending cuts: PwC