The impact of Local Government Reorganisation

Setting the Scene:  

Local government is undergoing its biggest shake up in more than 50 years, following publication of the English Devolution White Paper last December. 

The devolution aims to initiate economic growth in all regions and promote more localised decision-making. The proposed solution includes shifting away from current centralised powers, devolving powers to new authorities.  

These are scheduled to be up and running by 2028, with the focus on local leadership and greater public accountability.  

To get the process moving, the Government has now invited 21 county councils, 164 district and borough councils, plus 19 small neighbouring unitary authorities across England to develop proposals for reorganisation. 

The first piece of legislation, building on the White Paper, is the English Devolution and Community Empowerment Bill and was introduced to parliament in July. 

Concrete provisions, building on the White Paper’s ambitions, include: 

Handing the Secretary of State for Housing, Communities and Local Government the power to compel local authorities to reorganise;  

Redrawing police and fire service boundaries to be aligned with strategic authorities;  

Re-introducing supplementary voting for the election of mayors, whereby voters’ second preferences are also taken into account. 

Keeping you informed:  

This is the first in a series of articles from public buying organisation YPO, focused on promoting understanding of LGR.  

In this article, together with insurance broker Aon and insurer Zurich Municipal, we examine LGR’s possible impact on affected Local Authorities, focused on both procurement and insurance perspectives. 

Hopefully you will find this helpful in gaining an enhanced understanding of how authorities can navigate the challenges and capitalise on opportunities that reorganisation presents. 

Challenges around contract phasing: 

From a procurement point of view, one of the main challenges facing local authorities is managing expiring contracts, before LGR implementation in 2028.  

Multiple authorities will have their own contractual arrangements, particularly in the insurance field, where each organisation has its own unique risk profile.  

As multiple authorities, each with their own risk profiles and contractual arrangements, merge into unitary authorities, it will be critical to ensure that contracts are adequately managed, to ensure no gaps in coverage. 

It also gives rise to the question – what if contracts need to be changed? 

Any changes to contracts procured under the previous PCR 2015 will be subject to regulation 72, which governs the rules around “substantial” changes.  

A contract modification - i.e. an extension - may be secured if the “need for the modification has been brought about by circumstances which a diligent contracting authority could not have foreseen”.  

A contract procured prior to the publication of the White Paper may be considered a valid circumstance. 

In this case, a modification on this basis can only be granted 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 around modifications overlap with the previous regime to a large extent. The most significant difference is the introduction of the concept of “material” (as opposed to “substantial”) modifications. However, most of the provisions remain the same.  

As above, if you wish to modify a contract that has been procured under PA23, please consult a legal specialist to discuss your individual case. 

Preparing for the unknown:  

Although the new unitary authorities aren’t due to be in place until 2028, insurance managers should begin preparing now. 

With over 200 authorities being merged into around 50 unitary authorities, the market, for both brokers and insurers, will be very busy, and sourcing the necessary information and data is key to securing the right cover and best possible terms. 

Even the simplest reorganisation will see different authorities coming together, each with their own risk profile, insurance arrangements and claims history.  

Understanding these differences – and how they will shape each new authority’s insurance requirements – is essential. 

Tips and advice:

Under this link, Aon has put together a list of tips and advice for insurance managers to help them map out their requirements, helping them to get the best outcomes from their insurance tenders. 

Collaboration is key to achieving the best outcomes: 

The upcoming changes are set to place significant pressure on insurers.  

These developments – including the merging of councils, the creation of combined authorities, and the transfer of responsibilities - require insurers to dedicate substantial time and expertise to understanding new organisational structures, their associated risks, and claims’ profiles. 

Such large-scale transformations will inevitably demand a thorough analysis of the new frameworks, which can be complex and resource-intensive. 

Insurers must assess the implications of these changes to ensure they can provide adequate coverage and effective risk management.  

This process is not only time-consuming but also requires an in-depth understanding of the evolving landscape, which may stretch insurers' operational capacity. 

Additionally, insurers must also balance their existing contractual obligations to current customers with the additional efforts required to analyse and adapt to the reorganised authorities.  

This dual responsibility may strain their operational capacity, extend response times, and shift focus away from smaller contracts, which are equally important to the public sector. As a result, this could lead to the time of limited competition in an already constrained market.  

A reduced pool of bids is never welcome news in public sector tenders. There’s a danger that it impacts value for money and diminishes the diversity of insurers represented in the process.  

In turn, this ultimately affects 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 create gaps in 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 and safeguarding the procurement process’s integrity. 

Proactive collaboration will not only protect value for money but also ensure that the market remains diverse and competitive. This approach will help maintain high standards of service delivery and prevent any unintended consequences of the reorganisation.  

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

Summary 

LGR potentially offers a significant change in the way local government operates in the UK – with tremendous opportunities to boost local decision making. 

However, as we have explored above, the transition to strategic authorities will undoubtedly present a host of challenges, in terms of both procurement and insurance coverage. 

It’s vital to ensure early engagement and collaboration with both brokers and insurers. This is key to minimising disruption and making the switch to strategic authorities as smooth as possible. 

If you represent a local authority and would like to discuss further preparations for LGR, check out our list of key contacts: 

Contacts 

YPO: 

James Maclean 

Tel: 01924 834833 

Mob: 07856 480848 

[email protected] 

[email protected] 

 
Aon (Insurance Broker): 

Pete Rayner 

Public Sector Practice Leader 

07880 572 893 

[email protected] 

 

Zurich Municipal (Insurer): 

Agnieszka Gajli  

Public Sector Procurement Specialist 

+44 7483 468242 

[email protected] 

Resources:

UK Parliament

Local Government Association