George Osbourne has announced 19% average cuts to departmental budgets, revealing some of the deepest cuts in public spending in decades.

The Chancellor outlined that the public debit interest repayments now total £120m a day, or £43bn a year and it is hoped the cuts will allow the government to reduce the public debts and trim debt interest payments by £5bn a year to 2014.

Mr Osbourne said: “Reform is one of the guiding principles of this Spending Review. It is a hard road, but it leads to a better future.”

The reduction in public spending means that savings need to be made which should present many opportunities for the outsourcing industry and its variety of expertise.

Martyn Hart, Chairman of the National Outsourcing Association, said: “It’s interesting to note that the chancellor’s announcement of the Government Spending Review followed a similar approach to that taken at the beginning of the most successful outsourcing contracts. By reviewing the performance of the public sector spending as a whole, and identifying core competencies in each department, the Chancellor has been able to determine where fewer resources need to be committed.”

The NOA believe that the announcement could fuel a surge in public sector outsourcing with many government departments outsourcing services which are not core to their business.

Outsourcing can provide a range of different services for the public sector, for instance large integrated companies will be able to offer public savings by offering just one point of contact instead of many and companies with a broad range of services should be able to adapt easily to meet specific demands.

Martyn Hart added: “Although the government have confirmed that nearly 500,000 jobs could be lost as a result of the cuts, it’s also clear that there could be a real opportunity for job creation in the private sector as a direct result of this afternoon’s announcement.

“The Chancellor’s decision to cut the Whitehall administrative budget by as much as a third is a key example of this. By cutting the budget to back-office functions such as accounts and data-preparation by £6 billion, there could be a real opportunity for Business Process Outsourcing (BPO) suppliers in the private sector to benefit.”

The review also saw the Department of Business, Innovation and Skills bracing itself for an annual cut of 7.1% a year - an annual budget of £21.2bn. Outsourcing opportunities may also arise as a result of administrative cuts of £400m.

HM Revenue and Customs are expected to find resource savings of 15% through from “new technology, greater efficiency and better IT contracts,” the Chancellor said.

Technology companies have benefited from the recession as organisations look to increase efficiencies and reduce costs.

Piers Linney, joint CEO of Outsourcery said, “As companies brace themselves for the spending cuts and come under intense pressure to cut costs, they are looking to new technologies to create efficiencies, and alternative ways to achieve savings while remaining competitive, resulting in an indelible change in the economic and business landscape.

“This is fundamentally changing the way in which companies are working as they take advantage of the cuts to drive change within the business which has included adoption of practices such as remote working and outsourcing – which is helping companies preserve cash which is still in short supply.”

Recently many county councils such as Barnet, Suffolk, Brighton and Hove have already committed to outsourcing contracts and more will do so in response to their cuts in funding.

Infrastructure services firm, May Gurney, has been a market leader in local government outsourcing and look after highway maintenance for Northamptonshire, Essex and Norfolk county councils, among others.

Chief executive Philip Fellowes-Prynne said: "We are well placed as the comprehensive spending review measures are announced. We have grown by 50% in the past five years, mainly through outsourcing services, and I expect that to continue over the next five years, hopefully doubling in size.”

It is clear that many sectors will now look towards outsourcing services in a bid to save money however the danger lies in outsourcing cheaply at the cost of improved service to achieve a quick financial gain.

However Martyn warned: “It’s obvious that any project initiated on cost alone, is more likely to end in failure. However if performed correctly, with the right due diligence, it’s clear that outsourcing can achieve real results for the public sector – not just as a short term solution.”