Nearly half of all insolvency practitioners are expecting corporate failures to peak in the UK next year as the public sector spending cuts run deep into the economy.
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This is according to a survey by R3, the trade body representing insolvency professionals which claims that 148,000 small businesses are vulnerable to loss of business with the government.
Around 30% of small businesses polled were "very reliant" or "fairly reliant" on public sector contracts and 10% predict they would be insolvent if they lost those deals, said Steve Law, president at R3.
"The effect [of the coalition's austerity measures] on the current levels of corporate insolvency is likely to be pronounced in any case, given that business failures ran to 26,000 for the whole of 2009," said Law.
The number of casualties in the channel has remained remarkably low during the 18-month economic slowdown but recent Q3 figures from Graydon UK suggest that the tide may be finally turning.
A number of IT resellers have grown too reliant on the public sector and are seeking ways to rebuild a commercial business.
Law at R3 said its members had predicted a tough 2011 as the decline in public sector spending starts to become more prevalent.
"Factors such as loss of public sector work will see company insolvency numbers start to rise, potentially making 2010 the calm before the storm...businesses with a diversified customer base will clearly be able to weather the storm," he said.