CWW has profited handsomely from public spending

The idea that government contractors and outsourcers might gain from the era of austerity – the "spend-to-save" theory – always seemed a little like wishful thinking. It looks plain wrong after yesterday's warning from Cable & Wireless Worldwide, the misleadingly named company that makes most of its revenue in the UK. Just a few weeks after the emergency budget, CWW said that non-contracted spending in the UK public sector had slowed "very significantly". Take that as "ground to a halt," at least until civil servants and public bodies can get a firm grasp on the size of the cuts in their telecom and IT budgets. Non-contracted work represents only 20%, or £50m, of CWW's annual public sector revenues in the UK, so the impact in this year's figures may be slight – the company still thinks it can slip within the range of profit forecasts in the City. The problem for the company is what follows. Do government departments try to renegotiate existing contracts in order to squeeze suppliers on behalf of taxpayers? That might bite into the meat of CWW's revenues, even if there are longer-term opportunities for winning new contracts. Frankly, on the basis of the profit margins in government work suggested yesterday (£20m of lost profit for CWW from £50m of lost revenue), government procurement officers should start warming up. The 17% fall in the share price suggests CWW investors fear as much.