Public sector no longer the lifebuoy of the UK software and IT services market

This is a copy of our Press Release on the publication of UK Public Sector SITS Market Trends & Forecasts 2010

Main findings

• Private sector spending expected to outperform public sector for the first time in a decade
• Cuts expected in police, central government and defence through to 2013
• Data security and sustainability to be a major focus for government IT
• 2010 the ‘year of inaction’ as decisions are put on hold before the general election
• Big national IT projects squarely out of favour

Lifebuoy
The public sector has been the lifebuoy of the UK software and IT services industries for the past decade, with public sector IT contracts exceeding £10.9 billion in 2009. But with cuts expected under both the existing Labour government or a potential Conservative one, the public sector IT boom is at an end. These are the predictions from TechMarketViews’ first report - UK Public Sector SITS Market Trends & Forecasts 2010 - in the newly launched PublicSectorViews research stream.

The report, UK Public Sector SITS Market Trends & Forecasts 2010, looks at two specific scenarios dependent on the outcome of the next general election, and predicts that compound annual growth for the UK public sector could range between 2.9% and 0.8% between 2009-2013. The former prediction (2.9%) being the base scenario which assumes a continuation of the status quo with a Labour Government. The latter, more likely scenario, assumes a Conservative Government wins the 2010 election and that tougher spending cuts are put in place after the general election.

2011/12 will begin to see the effect of more significant budget cuts as well as some uptick in outsourcing. By 2012/13, growth in outsourcing – notably in local government – will offset spending cuts in other areas such as consulting, systems integration and software, particularly in defence and central government 

By Vertical Sector
Health is forecast to be the strongest growing sector in both scenarios, followed by Education and local Government. Central Government, the Police and defence sectors will experience the lowest, or negative, growth. Budgets in these sectors are less protected than in health and education, which will still require some investment in IT even if large programmes such as the National Programme for IT in the NHS (NPfIT) and Building Schools for the Future (BSF) are scaled back. In local Government, growth in outsourcing is expected to be particularly strong, which will disguise the effect of budget cuts on other areas of the local and regional government software and IT services market.

Predicted Compound Annual Growth Rates under a Conservative Government (between 2009-2013), by sector

Source: TechMarketView

By Horizontal Sector
When looking at the horizontal verticals within public sector IT, TechMarketView predicts that outsourcing will replace project services as the largest horizontal segment by 2013, with 58% of the market (up from 48% in 2009). Project services are set to decline to just 24% of the total public sector market by 2013 (down from a high of 30% in 2009). Fundamentally, measures to cut costs and gain efficiencies will be at the top of public sector agendas for the foreseeable future.

Research director, Tola Sargeant, says "Not all doom and gloom"
“With a change of government expected later this year, IT suppliers to the public sector need to be prepared to adapt to new market conditions. The public sector has been the lifebuoy of UK IT for quite some time, so such a significant cut will have far-reaching consequences,” says Tola Sargeant, Research Director, TechMarketView.

“Cuts to IT spending could have a significant impact on the delivery of public services in some areas. The £12 billion National Programme for IT in the NHS (NPfIT) is a good example. The controversial programme is widely expected to be curtailed or reduced in scope whichever party wins the next election in a bid to reduce public spending. If this is not done sensibly then it will be patients and tax payers that suffer most. Patients, because IT systems have real benefits in terms of improved efficiency, reduced waiting times, reduced clinical risk and an improved patient experience. And tax payers because renegotiating contracts with existing suppliers and procuring alternative systems could be a very expensive and lengthy business.”

“However it’s not all doom and gloom, particularly if you’re in the outsourcing business, which is expected to be responsible for practically all the growth in the UK public sector over the next few years. Numerous high-profile data leaks within the public sector in recent years and the government’s commitment to make government ICT carbon neutral by 2012 will also make data security and sustainability key priorities over the next few years.”

Posted by Richard Holway at '07:58'