IT contractors and other private sector firms working for the public sector have been warned to prepare for possible cuts in the future.

Spending reductions of £6.2 billion are expected to be included in the forthcoming Budget and Spending Review, with the Institute of Chartered Accountants in England and Wales warning firms to be prepared for the worst.

The organisation has recommended the contractors check when their agreement is due to come to an end and examine what the penalties would be if it was terminated early.

Perhaps most importantly, contractors were urged to look at their business plan and establish whether it needs to be changed in light of the potential reduction in public sector spending.

ICAEW head of enterprise Clive Lewis added: "There are actions that can be taken though which can soften the blow and ensure that it will not mean that a company will go out of business.

"It is clear that there are some deep seated problems to address in the UK's public finances and it is best to be prepared for this eventuality."

Earlier this month, the Recruitment and Employment Confederation urged companies to evaluate the skills of their workforce and address any deficiencies.