Serco is in discussions with staff about likely job cuts. Staff first heard the news a week ago, and the company has set up a committee to hear employees' views - the first meeting is being held this afternoon.

A source at the company told the Reg that staff were surprised by the decision because the firm carried out restructuring just last year. Serco bought ITNet for £235m in December 2004.

The number of job losses depends on the outcome of discussions, but the figure is believed to be around 170.

A spokesman for Serco said: "We've started the consultation process - the first formal meeting is this afternoon. We'll be talking to staff and are committed to treating them fairly and sensitively. Until this process is over I can't confirm any numbers."

Serco likes to talk up its employee relations - 35 per cent of staff have formal union agreements.®

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