The firm saw net fee income fall 26% in the UK to £243.9m for the year to June 30 compared to £330.7m last time.
Hays said: “The pressures on public finances impacted the remainder of our public sector business, particularly in Construction & Property.”
Resources are being shifted into private sector recruitment as public sector fees fell by 19% and are now one third below levels seen during Labour’s spending spree.
Hays shut 38 offices to cut costs during the year as it shed 5% of its consultants and many back office functions were relocated to India.
The firm is still appealing against a £30.4m Office of Fair Trading fine imposed after Hays’ construction and property arm was found guilty of breaching competition law between October 2004 and November 2005.
The fine has not been paid pending the appeal and the cash is held on deposit by Hays.
Chief executive Alistair Cox said: “The outlook across 90% of our markets, including the UK private sector, continues to improve.”
Worldwide net fees fell 17% to £557.7m as pre-tax profit before exceptional items dropped 53% to £71m.