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UK banks to freeze IT spend

Karl Flinders

The £50bn cash injection made by the government to bail out UK banks will lead to a cut in IT spending and reduce the use of offshore IT suppliers, according to analyst firm Towergroup.

Bob McDowall, analyst at Towergroup, said all banks will hold back their tactical and strategic IT investments until the ramifications of the bail-out are clear.

“Where there are commitments or maintenance requirements IT spending will go on, but new strategic and tactical spending will stop until the banking industry evaluates the impact of the government intervention,” he said.

The government offered up to £50bn cash to recapitalise UK banks. As a result, it now owns 60% of the Royal Bank of Scotland (RBS) and would own 41% of a combined Lloyds TSB/HBOS.

McDowall said when spending does resume there will be a clear difference in IT investments between the banks that have taken money from the government and those that have not. “The banks that are partly owned by the government will scale back more risky businesses, such as investment banking, which will lead to a cut in IT spending.”

He added that banks may be forced to reduce the amount of IT work they push offshore. “If these banks offshore a lot of work and make UK workers unemployed, the government has to pay unemployment benefit, so it is in the government’s interest to reduce offshoring.”

Last month, the Lloyds TSB union called on the government to put an end to offshoring jobs, as a condition of the massive cash injection the bank has received.

Picture from Rex Features

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