Public sector IT: 'Come on in, the water's great'

For IT suppliers, the UK public sector is the place to be in 2005 according to new research.

A report from market researcher Pierre Audoin Consultants (PAC) says the public sector is the country's largest vertical of the software and IT services market, worth £7.4bn in 2004.

The sector has historically been immune to downturns, and has benefited from large government spending on IT projects of late, such as the £6bn NHS IT programme.

Things will start to look up even more after the expected spring 2005 election, according to the report, considering the government's mid-2004 spending review promised to cut 100,000 civil servant jobs and to use IT to increase efficiency and savings.

Though the central government makes up half of the public sector, local councils are the fastest growing area in terms of IT adoption - slated for average annual growth of 9.4 per cent between 2004 and 2008, says PAC. This is because they've been slow to invest thus far and need to catch up, especially as budget restrictions require the need for the increased efficiency IT promises to provide.

Councils are also likely to be carrying out e-government initiatives as they are the ones that deliver services to the public. And, as local authorities are expected to share IT services, it means they could account for big deals that are attractive even to large service providers who haven't wanted to bid for small, piecemeal projects, says PAC.

Outsourcing is the largest and fastest growing sector of the public sector IT market in the UK, projected to be worth £5.6bn in 2008, up from £3.9bn in 2004, according to the report.

Meanwhile the combined software and services sectors will grow to £4.1bn in 2008, from £3.3bn in 2004.

The greatest areas of opportunities are back-office and enterprise applications from the likes of SAP and Oracle. There will also be plenty of room for consultancies as governments will require advice on reworking processes and managing change to get the most of their new systems.

After the IT outsourcing deals are in place, PAC predicts there could a growing demand for business process outsourcing as well.

To date the largest IT suppliers in the UK public sector are EDS (with £1.3bn in 2003 revenues), Fujitsu Services (with $5.5m) and Atos Origin (with £3.9m), according to the report.

The fastest growing players between 2002 and 2003 were CSC with 175 per cent growth and Northgate with 80 per cent.

The report, SITSI Verticals: Public Sector UK, is available from PAC's website.