The impact of Local Government Reorganisation

Setting the scene

Local government is undergoing its biggest shake-up in more than 50 years following the publication of the English Devolution White Paper last December. Devolution aims to drive economic growth across all regions and promote more localised decision-making. The proposals involve shifting powers away from central government and devolving them to new authorities. These authorities are scheduled to be up and running by April 2028, with an emphasis on local leadership and greater public accountability.

The Government invited 21 county councils, 164 district and borough councils, and 19 small neighbouring unitary authorities across England to develop reorganisation proposals.

The first piece of legislation to build on the White Paper, the English Devolution and Community Empowerment Bill, was introduced to Parliament in July 2025.

The Bill received Royal Assent on 29 April 2026, becoming the English Devolution and Community Empowerment Act. This preceded the decision in July to streamline 134 councils into 38 unitary councils, following earlier LGR decisions for the Devolution Priority Programme (DPP) areas of Surrey, Essex, Hampshire, Norfolk and Suffolk.

Keeping you informed

In this article, together with insurance broker Aon and insurer Zurich Municipal, we examine the possible impact of LGR on affected local authorities from both procurement and insurance perspectives. We hope this will help you better understand how authorities can navigate the challenges and capitalise on the opportunities presented by reorganisation.

Challenges around contract phasing

From a procurement perspective, one of the main challenges facing local authorities is managing contracts that expire before LGR is implemented in April 2028, or April 2027 in DPP areas.

Multiple authorities will have their own contractual arrangements, particularly for insurance, where each organisation has a unique risk profile. As authorities with different risk profiles and contracts merge into unitary authorities, careful contract management will be critical to avoid gaps in cover.

This also raises the question: what happens if contracts need to be changed?

Changes to contracts procured under the Public Contracts Regulations 2015 (PCR 2015) will be subject to regulation 72, which governs “substantial” modifications.

A contract modification, such as an extension, may be permitted where the “need for the modification has been brought about by circumstances which a diligent contracting authority could not have foreseen”. A contract procured before publication of the White Paper may qualify under this provision.

In such cases, the modification can be made only if the “increase in price does not exceed 50% of the value of the original contract”. Please consult a legal specialist about your individual circumstances.

Under the Procurement Act 2023, the rules on modifications overlap substantially with the previous regime. The most significant difference is the introduction of “material”, rather than “substantial”, modifications; however, most provisions remain similar.

As above, if you wish to modify a contract procured under the Procurement Act 2023, please consult a legal specialist about your individual case.

Preparing for the unknown

Although the new unitary authorities are not due to be in place until 2028 in most areas, insurance managers should begin preparing now. Plans for the six DPP areas were announced in October 2025, ahead of vesting day in April 2027. In July 2026, further plans were announced to reform 134 councils into 38 unitary councils, with decisions still pending for West Sussex, Cambridgeshire and Peterborough.

As shadow authorities are formed, the market will become very busy for both brokers and insurers. Sourcing the necessary information and data will therefore be key to securing the right cover on the best possible terms. Even the simplest reorganisation will bring together authorities with different risk profiles, insurance arrangements and claims histories. Understanding these differences, and how they will shape each new authority’s insurance requirements, is essential.

Tips and advice

Aon has compiled a list of tips and advice for insurance managers to help them map their requirements and secure the best outcomes from insurance tenders. Zurich has also established its own LGR Hub to support authorities and stakeholders through the transition to unitary authorities.

Collaboration is key to achieving the best outcomes

The upcoming changes are set to place significant pressure on insurers. The merging of councils, creation of combined authorities and transfer of responsibilities will require insurers to devote substantial time and expertise to understanding new organisational structures, associated risks and claims profiles.

These large-scale transformations will require detailed analysis of new and potentially complex frameworks. Insurers must assess the implications to ensure they can provide adequate cover and effective risk management. This time-consuming work requires an in-depth understanding of the evolving landscape and may stretch insurers’ operational capacity.

Insurers must also balance their existing contractual obligations to customers with the additional work needed to analyse and adapt to reorganised authorities. This dual responsibility may strain capacity, extend response times and shift attention away from smaller contracts that remain equally important to the public sector. As a result, competition could become more limited in an already constrained market.

A smaller pool of bids is never welcome in public-sector tenders. It may reduce value for money and limit the diversity of insurers represented in the process, ultimately affecting the quality and breadth of services available to public-sector bodies.

Addressing the challenges

Effective collaboration between authorities and insurers is essential. Early engagement, as encouraged by the Procurement Act 2023, can play a pivotal role in ensuring that reorganisation does not inadvertently reduce competition, distort the market or compromise service quality.

By working together, authorities and insurers can develop shared plans and streamline processes, enabling a smoother transition while safeguarding the integrity of the procurement process. Proactive collaboration will protect value for money and help keep the market diverse and competitive. It will also support high standards of service delivery and reduce the risk of unintended consequences arising from reorganisation.

By fostering open communication and mutual understanding, both parties can navigate this period of change effectively and ensure that the needs of all stakeholders are met.

Summary

LGR represents a significant change in the way local government operates in England, with considerable opportunities to strengthen local decision-making.

However, as explored above, the transition to new unitary authorities will also present challenges for procurement and insurance cover.

Early engagement and collaboration with brokers and insurers will be vital to minimising disruption and making the transition as smooth as possible.

Contacts  YPO: 

James Maclean 

Tel: 01924 834833 

Mob: 07856 480848 

[email protected] 

[email protected] 

Pete Rayner 

Public Sector Practice Leader 

07880 572 893 

[email protected] 

Agnieszka Gajli  

Public Sector Procurement Specialist 

+44 7483 468242 

[email protected]