Look for the silver lining

Outsourcing firms and insurers may find opportunity in the government’s fiscal crisis

It’s an ill wind that blows no good and, counterintuitively, some companies could benefit from next week’s government belt-tightening. Despite fears that spending cuts may stall fragile economic recovery, firms which provide services more cheaply than the public sector may enjoy increased turnover and profits.

Outsourcing companies ensure that light bulbs are replaced and loo rolls supplied, among a wide range of other ‘facilities management’ services, without the need to provide expensive final salary-based pensions and other benefits for staff. Whatever you think of the ethics involved, it’s no wonder a report by DeAnne Julius, a former member of the Bank of England’s Monetary Policy Committee, found that outsourcing could deliver vital services for 30 per cent less than public sector employees can.

Firms in this space such as Capita, Carillion, Interserve and Serco have long been regarded as ‘Cinderella stocks’ — a largely overlooked corner of the support services sector.