The fall-out from the scandal over Serco’s criminal tagging contract is set to leave profits at the private security firm up to 20pc lower than expected.

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The latest warning from the troubled outsourcing firm came despite it being cleared by the Cabinet Office to resume bidding for public sector contracts.

Shares slumped 15pc as the company said the time needed to rebuild its bid pipeline and overhaul its business will leave this year’s profits between 10pc and 20pc short of current City expectations of around £277m.

Last month, Serco agreed to repay the Government £68.5 million for over-charging on criminal tagging contracts, as well as repay £2 million of past profits from a prisoner escorting contract.

It is co-operating with investigations by the Serious Fraud Office after allegations that Serco and rival G4S overcharged for tagging offenders, some of whom were found to be dead, back in prison or overseas.

The revelations led to a freeze on bidding for lucrative Government contracts, although Serco said today that it had now received a “positive assessment” of its corporate renewal plan from the Cabinet Office.

It said it could now be considered on an equal basis to other suppliers for current bids, rebids and extensions.

Changes at the firm have included an updated code of conduct backed up by training and performance management.

The group, which runs a vast range of services from prisons to rail services, warned in November that it will miss profit forecasts for 2013, based on a mid-single digit percentage decline in revenues for the year.

Acting chief executive Ed Casey said: “The significant steps we are taking demonstrate our commitment to rebuilding the confidence of our UK Government customer and ensuring that the issues that emerged last year will not reoccur.”

Mr Casey took over from Christopher Hyman, who resigned in October.

Cabinet Office minister Francis Maude said: “The changes that Serco has already made and its commitment to go further over coming months are positive steps that the Government welcomes.

“However, Serco’s corporate renewal is an ongoing process and the Government places a strong emphasis on the full and timely implementation of the agreed Corporate Renewal Plan.”

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