Business Services Weekly: The Service Station

Research evidence excerpt

Business Services Weekly: The Service Station

Deutsche Bank

Research

Europe Industry Date

19 June 2026

Business Services Business Services

Periodical

Weekly

The Service Station

David Brockton

Recent comments from some high-profile UK politicians have increased perceived

Research Analyst

political risk for the outsourcing sector. A further negative development is the UK +44-20-754-11721

government's launch of a Public Interest Test policy that seeks to determine if future

central government contracts can be better delivered in-house. The test will apply Steve Woolf

to all service contracts >£1m, subject to certain exemptions, focusing on (i) whether

+44-20-754-54604

a service is a good candidate for insourcing (centred around value for money,

strategic alignment, social value and market impact), and (ii) determining the James Beard

contracting authority’s readiness for insourcing. The Cabinet Office intends to Research Analyst

initially apply the test to its own building management contracts, including +44-20-754-56765

cleaning and security. We simplistically note Capita is c.80% UK public sector by Ben Wild

revenue, Mitie is c.50% and Serco c.50%, but these figures include local Research Analyst

government and other likely exempt work (e.g., defence). We see low risk at +44-20-754-15334

Babcock (c.60% UK defence) given defence exemptions, but the stock is being Bharat Rajesh, CFA

impacted by concerns over future UK defence spending. It is too early to determine Research Associate

the impact of this policy, but it adds risk at a time when sentiment towards the sector

is fragile. We believe its near-term impact will more likely be on valuation multiples

and future confidence in contract pipeline conversion. It reinforces the importance