The public sector will undoubtedly be affected by the downturn. Revenues will drop, costs will rise and some people even fear that the Government will reopen last year's public spending review, with the result that organisations may have less money to spend than forecast.

In such circumstances, it can be tempting for public bodies to start chopping expenditure across the board but that would not be wise. Our advice is to take a deep breath and look for the opportunities contained in this situation.

The starting point is assessing exactly what the downturn will mean and how fast it will have an effect. From there, it is a matter of building a model to test what the impact will be.

Obviously, a reduced tax take will lead to fiscal pressure and public expenditure restraint but I don’t think the Government will reopen the public spending review because cutting investment right now as things are slowing down could drive the economy further into recession. It would be both unusual and a miscalculation.

I expect to see the Government wait until the next review to bear down on expenditure. However, if it plans to do this, it needs to start signalling those changes now so that public bodies can begin to prepare themselves. Listening to what ministers are saying at the moment, it seems that they have already started to do this.

But it is not just reduced grants or tax take that will affect public sector income. Take local authorities, for instance. Those that get income from leisure centres are likely to see it drop as people cut back on the amount they spend on such activities; equally, a chunk of revenue is related to the property market – land searches and so forth – so that will be hit too.

Alongside this, some costs will go up. For example, there is plenty of anecdotal evidence that some people who have in the past sent their children to independent schools will turn to the state sector instead. And local authority pension schemes will have been pushed into deficit by what’s happening in the equity markets.

However, if public bodies respond in haste and attempt to squeeze a little bit more out of every department, they will simply end up cutting service levels. What they need now is not a knee-jerk reaction but strategic, transformational change.

For example, structures where all departments share a back and middle office rather than running parallel administrations; this sharing could even be extended to include other local public bodies such as health trusts.

Local authorities should also look for cost-saving opportunities brought by the downturn itself. They will be in a strong position to negotiate better, long-term deals with suppliers as the market softens.

And where regeneration deals depend on land assembly – buying parcels of land from a number of owners so that it can become a package that is big enough to interest developers – the public sector could take advantage of the current slump to buy from what may be distressed owners.

Any subsequent deals with developers should allow the public sector a share of any rise in land value over the next five years or so. Jon Sibson is a partner at PricewaterhouseCoopers LLP and the leader of its government and public sector practice

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