Conservative-Lib Dem coalition: Tech industry nervous on prospects

Offshoring is expected form a central theme for technology in the newly announced Conservative-Liberal Democrat coalition, but there is likely to be a significant “dead period” before contracts are announced, observers note. Meanwhile, heavy spending cuts are expected to be announced within weeks.

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Britain has a new government but the IT industry is likely to face a prolonged period of uncertainty as the new occupants of Downing Street assess their options.

The new Conservative-Liberal Democrat coalition has said it will cancel some high profile government IT projects and make substantial cuts in public spending. Outsourcing and offshoring are expected to play a crucial part of the budget reduction process.

However, there is the prospect that the technology projects, which were a political football between parties in the last parliament, could become a point of contention within the new coalition.

Whether or not that happens, the city expects some delays in the announcement of new outsourcing contracts. IT outsourcers' share prices slid after the election with veteran industry analyst Richard Holway, chairman of TechMarketView, suggesting that a coalition could “lack the steel to take the tough decisions required to outsource much of the public sector back office activities as stated in the Conservative Manifesto”.

The Conservatives used the election to reiterate existing plans – to freeze major new IT spending, and to make changes in government procurement by opening the market to smaller suppliers.

WHAT THE INDUSTRY FORESEES

Siginficant cuts to government IT spending

Scrapping centralised NHS patient records and ID cards

Offshoring to take a greater role in projects

Potential clashes over UK jobs in technology

An attempt to move to more shared services and open source software

It will take some time for the new government’s attitude to people working in technology to become clear. In its manifesto, the Tory Party made few direct promises in this area – a clear contrast with recent Labour plans promising funding for 20,000 higher education training places in science, technology, engineering and mathematics subjects. The Liberal Democrats had promised the creation of 100,000 green jobs, including technology, if they had won the election outright.

Tough cuts to government IT spending are expected, with an emergency Budget due to be held within 50 days. Some existing projects are also likely to be axed – both parties are agreed that centralised NHS patient records need to be scrapped under the £12.7 billion National Programme for IT, alongside the cancellation of the entire £5 billion ID card scheme. But biometric passports, called by some as “ID cards by the back door”, will remain.

Any cancellation of contracts is likely to attract heavy penalties from suppliers, along complex legal disputes. The Department of Health has already racked up costs nearing £40 million in troubled contract negotiations with NHS IT suppliers.

A number of projects had already been sent abroad in recent months under the Labour government, including a £600 million pensions processing deal with Tata Consultancy Services in India. The company is also developing the new child support and maintenance scheme systems.

Any cuts to UK work will meet strong industry resistance, whether they lead to offshoring or cancellation. Labour had insisted it would cut £3.2 billion from IT spending by 2012, plans that Socitm, the industry body for local government IT managers, immediately lambasted as cutting costs instead of improving services.

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