Many countries are facing the twin pressures of austerity and recession following the 2007–2008 global financial crisis. This paper uses the UK public sector and a major national announcement of budget cuts signalling extensive organizational cutbacks as its setting. We examine (a) whether organizational changes following the national announcement affect public sector employees' psychological contract breach, (b) whether employee reactions to psychological contract breach are consistent with the target similarity model and vary across foci, namely the organization, co‐workers and public service users, and (c) whether some of these relationships are moderated by job insecurity or public sector commitment. We collected longitudinal survey data before and after the announcement of budget cuts, using a sample of 340 employees from a range of public organizations and locations. Results largely confirm the hypotheses. Increases in organizational change predicted psychological contract breach, which in turn predicted decreases in contributions towards the organization; however, contributions towards co‐workers and public service users were unaffected, which can be explained with a target similarity, rather than a spillover, model. Furthermore, the relationship between breach and employee behaviours directed toward the public was moderated by job insecurity and public sector commitment.