Serco, one of the largest IT suppliers to government, has today apologised to its own suppliers for trying to squeeze them for 2.5 per cent cash rebates on existing contracts.

The retraction follows a report in a Sunday newspaper, which said the Cabinet Office was angered by the firm's treatement of its partners.

"As a company that values our relationships with all our supply chain partners, large and small, we deeply regret this action and apologise unreservedly to them for the concern that this has caused," Serco said.

Finance director Andrew Jenner had previously written to 200 suppliers claiming that the Cabinet Office's efficiency drive meant it needed rebates.

In apparent arm-twisting, he wrote: "Your response will no doubt indicate your commitment to our partnership but will also be something I will seriously consider in our working relationship as Serco continues to grow."

Francis Maude, the Cabinet Office minister responsible for government IT, reportedly called Serco for an explanation of the tactic.

Ths stock market also reacted badly to Serco's embarrassing about-face today, sending its stock down more than six per cent this morning. ®