Some £20m will be shaved off the COI's £41m budget for PR and news management. A further £20m will be deducted from Whitehall PR budgets.
It means dozens of government comms campaigns will be scrapped, with only 'essential' campaigns left standing. The cull will start immediately after consultation between the Cabinet Office and Government departments.
In addition, the COI will now deal with all comms contracts worth more than £25,000. meaning the department will handle a higher proportion of Government comms briefs. A number of quangos have also seen budgets slashed.
The news follows Monday's announcement by Chancellor George Osborne and Chief Secretary to the Treasury David Laws of £6.25bn cuts to public sector spending.
A Cabinet Office spokesman told PRWeek the Government's communications budget for this financial year will be halved. He said only new campaigns deemed essential would be launched, adding: 'There has to be clear evidence of tangible benefits.'
One senior public sector agency source told PRWeek agencies with a high number of public sector clients would 'have to be concerned about their future', but added that they should not be surprised. 'Anyone who has picked up a newspaper over the last year could have predicted this day would come,' he said.
Agencies expected to be hit hardest include Kindred, which, as shown in PRWeek's 2009 public sector league table, makes 77 per cent of its income from public sector clients. Others include Communications Management (66 per cent), The Bridge Group (87 per cent), DTW (65 per cent) and Quantum PR (59 per cent).
A spokesman for the Department for Education, which has to make cuts of £670m, said it is too early to predict how comms budgets will be affected within the department. But agencies handling big-ticket PR briefs are being warned they could be the main focus of reductions.
Gyroscope MD Tom Wells, who has advised the Department for Work and Pensions on comms procurement, said: 'Cuts in public sector communications spending seem most likely to fall on agencies.
How I see it
NEIL HEDGES, Chairman, Fishburn Hedges
It will have a big influence. There is talk of a new approach where contracts worth £25,000 will go through the COI and be declared; that will add a level of discipline. In terms of consultancy support it is more likely to be more project-based. Firms might have to be more about strategies than full campaigns.
MIKE MORGAN, CEO, The Red Consultancy
The coalition Government will return to needing professional comms help at some point. But it will be looking for agencies that willl deliver a return on investment. We are not seeing the end of an era, just a change in attitude.
£1.7bn - Savings in Whitehall by delaying/ending contracts with 70 suppliers
£85m - Marketing, travel, research budget cuts at Dept for Work & Pensions
£60m - Bureaucracy/marketing spending reduction at Dept for Education
£41m - COI spend on PR and news management in 2009
- Source: Government announcement 24 May 2010