AS Britain heads towards its first recession since the 1990s, one of the few economic bright spots is government spending. The economy contracted by 0.5% in the third quarter, but government and other services rose by 0.4%.

Gordon Brown and Alistair Darling confirmed last week that they would maintain public spending and even bring forward some projects to help businesses and households — a boon for the companies most likely to win government contracts.

That will mean Labour breaking its fiscal rule introduced by Brown a decade ago: that overall debt should be kept below 40% of national income. “The UK, as well as other countries, is moving into recession,” said Darling. “To apply the fiscal rules in a rigid manner today would be perverse.”

Public-sector net borrowing hit £37.6 billion in the six months to September, the highest half-year total since records began in 1946 and compared with £21.5 billion for the same period a year ago.

A public-works programme would see billions of pounds brought forward for new schools, homes and transport links. That would give a much-needed shot-in-the arm to the infrastructure, construction and support-services sectors.

Here are our top 10 recession-busting stocks that are likely to deliver good profits:

1 SMITHS GROUP

To encourage mass production of green vans, the Department for Transport announced last week that 10 companies had been short-listed to bid to provide electric and low-carbon vans to public-sector bodies. The £20m programme is part of a £100m proposal to develop vehicles for the Environment Agency, Royal Mail, Metropolitan Police and councils.

Smiths, the FTSE 100 engineering firm, is one of the short-listed companies. It recently posted a 10% rise in full-year profit. Its shares have tumbled 40% from £11.56 in September to 798p on Friday.

2 WS ATKINS

Atkins, the largest engineering consultancy in Britain, should be among the first to benefit from rising public spending. “Atkins would be likely to benefit from the first tranche of any new funding,” said Charlotte Black at stockbroker Brewin Dolphin.

Three-quarters of Atkins’ revenues comes from public and regulated markets, such as utilities. Its shares look cheap, having fallen 56.3% from a 52-week high of £12.13 to 530p.

3 SPICE HOLDINGS

Brewin Dolphin’s investment-banking arm rates Spice as a stock for hard times, due to its involvement in upgrading the UK’s ageing utilities infrastructure.

The firm, founded in 1996 through a management buyout from Yorkshire Electricity, also maintains electricity substations, undertakes gas inspections for housing associations and has an energy-efficiency arm — a good business to be in as the government strives to meet ambitious CO2 emissions targets.

Spice has an annual turnover of around £400m, of which £55m is derived from government contracts, chief executive Simon Rigby said. Many of these are 10 year-plus deals, with the average lasting five years.

Spice joined the FTSE 250 in July, having first been admitted to AIM, the London Stock Exchange’s junior index, in August 2004. Its shares have dropped 25.3% from a peak of 126Åp in September to 94.5p today.

4 BABCOCK INTERNATIONAL

The firm provides support services to the marine, defence, rail and engineering sectors. It maintains the rail network — and could reap the rewards of increased spending. Its shares have tumbled 40.4% since June — to 386p from 647Åp, but rallied last month after Merrill Lynch repeated its “buy” rating.

5 CARILLION

Shares in the support-infrastructure business have declined 48.7% — from 403Åp a year ago to 207p on Friday — partly due to the oil-price fall. The company has joint ventures in Dubai, Oman and Abu Dhabi. Bradley Mitchell at Royal London Asset Management, who holds the stock in the Scottish Life UK Ethical fund, said it had been “hugely oversold”. The firm, a pioneer in private-public partnerships (PPPs) and the private finance initiative (PFI), maintains a fifth of Britain’s main artery roads and motorways, and is involved in a range of health, educational and defence projects.

6 SERCO

Support-services group Serco unveiled a 20.8% rise in half-year pre-tax profit in August, and said it was buying the US government services provider SI International for $423m (£257m). Recent contract wins in the UK public sector include a £266m 10-year contract with Glasgow city council. It also manages prisons, provides air-traffic control services and works in the defence, health and education sectors.

Its shares slipped 21.8% — to 369p from 471Çp in June.

7 BALFOUR BEATTIE

Around 7% of the construction firm’s operating profit comes from PPP and PFI projects. It recently

signed a £150m deal to transform schools in Islington, north London, under the government’s £2 billion Building Schools for the Future initiative, which will see the rebuilding or modernisation of every secondary school.

Balfour Beattie has also struck PPP deals for a £152m hospital in Fife and the £150m Carlisle Northern development route. Its shares have fallen from 485p a year ago to 249p — a decline of 48.7%.

8 MAY GURNEY

This support-services business derives 75% of its revenues from repair and maintenance projects, and 95% or more from public or regulated sectors.

Recent contract wins include a five-year waste-recycling deal with Barnet council in London to help it reach its recycling targets.

Brewin Dolphin expects pre-tax profits at the AIM-listed firm to rise from £18.7m in the year to the end of March to £21m next year and £22.8m in 2010.

Its shares have dropped 54% from 326p a year ago to 150p today.

9 MORGAN SINDALL

Royal London’s Mitchell also likes Morgan Sindall, a building firm involved in affordable housing, construction and infrastructure services that recently announced a 31% jump in interim pre-tax profits to a record £33m.

In September, its construction business, Morgan Ashurst, struck a deal worth up to £100m with North Lanarkshire council for a £300m school-modernisation programme. Lovell, the group’s affordable-housing business, has recently won a £53m deal with Hounslow Homes to develop up to 350 properties.

A year ago the shares were worth £15.73 — a figure that stood at 427Ä at Friday’s close, 72.8% lower.

10 STAGECOACH

“Stagecoach is continuing to benefit from a slow switch by commuters from private transport modes to perceived cheaper public-transport options,” said Keith Bowman at the adviser Hargreaves Lansdown.

Stagecoach said like-for-like sales for the 24 weeks to October 12 were up 9.2% for UK bus and 8.3% for UK rail, while the North American division was 8.4% higher.

Its shares have held up well, slipping 28.2% to 185p from 257Åp a year ago.