Tough times ahead as Lib-Cons look to slash ad budgets

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Even before the election, Labour planned a 25% cut over three years. The then shadow chancellor George Osborne wanted to slash it by more than 50% — to 1997 levels in real terms.

The new Lib-Con team has not yet spelled out its plans but there have been two powerful reminders of Whitehall's impact on the ad industry. First, Fitzrovia-based digital agency i-level went into administration on May 5 — three months after losing its COI contract to WPP subsidiary M4C. The loss of that £40 million contract, worth nearly half of i-level's turnover, directly led to the company's demise, even though it faced wider financial problems.

Second, there are indications that the ad market turned soft in April when, as is usual, Government halted spending and went into "purdah" for the duration of the election campaign. Although COI makes up only 2% of the UK display ad market, it matters far more to some media owners such as commercial radio stations, which can receive more than 10% of revenues from Government.

Those close to the COI indicate that it could take until July before its ad spending returns in a significant way. They point out that its clients, individual Whitehall departments, always cut back in the first year of a new administration as it takes a while to turn manifesto pledges and policy into communications ideas.

The COI is hopeful of an "intelligent" response from the deficit-cutting Lib-Cons but it seems clear that the ad industry will be among the first to feel the brunt.