£78 Billion Local Government Settlement – How Will This Affect Tendering in 2026?

Following publication of a central government press release in December, England’s local councils will receive more than £78 billion for essential services in 2026, with the scheme lasting three years in total.

Ultimately, the aim of the Local Government Finance Settlement is to establish greater certainty for local councils and allow them to address long-term objectives, rather than focusing on balancing budgets year on year.

We explain the contents of the Local Government Finance Settlement, which will impact public services and authorities, and what this means for public sector tenders and bidder organisations.

What is the Local Government Finance Settlement?

Funding stemming from the Local Government Finance Settlement represents the first multi-year funding settlement for local authorities in more than a decade. It further replaces a system where some councils could accumulate significant cash reserves, whilst others faced real risks of insolvency.

As a result, the most deprived decile of councils will receive 24% per person increases in available funding.

The structures introduced as part of the Local Government Settlement will support:

• Fairer housing incentives, with councils retaining all additional council tax raised from new homes as part of future budgets
• Reduced bureaucracy in accessing available funding networks, streamlining three dozen funding streams collectively worth £56 billion across the three-year term
• Greater planning capacity and certainty, with investment supporting councils to focus on local resident priorities and introducing greater structural developments.

Greater economic certainty for councils

Recent years have seen local authorities in England under increased budget pressures and strained finances. In 2023, Birmingham City Council, Nottingham City Council and Woking Borough Council issued Section 114 notices, effectively declaring bankruptcy.

An anonymous report later that year stated around one third of local authorities were considering issuing S114 notices, many serving the most deprived areas of the country.

The Local Government Settlement includes a statement that ‘all councils will be protected financially’ during the change and implementation periods – providing greater economic certainty for the councils and their residents.

What public services will the Settlement impact?

Within the press release, Secretary of State Steve Gray specifically mentions restoring ‘libraries, youth services, clean streets and community hubs’ as objectives of the Settlement.

However, the Local Government Settlement also mentions specific funding streams including:

• Health and social care in line with spending increases, in areas such as domiciliary care, children and young peoples’ care and potential recruitment to boost available staffing
• Streets, highways and parks maintenance, including waste disposal, grounds maintenance, street cleansing and drainage services, amongst others
• Council housing repairs and maintenance, with new spending powers potentially seeing increases in mechanical and electrical servicing and maintenance, gas servicing and installations, and decarbonisation and retrofit programmes.

Councils with more robust financial health may choose to allocate the funding elsewhere, and the above list may not be comprehensive.

How will this affect public sector tenders and suppliers?

Beyond local governance and residents, local economies will also benefit from greater budget certainty for English councils. The public sector represents an important client base for many organisations, small- and medium-sized businesses in particular, relying on their strong payment terms for cash flow and stability.

With multi-year contracts and framework agreements at stake, the financial health of councils is important for public suppliers – as such, we recommend that current or potential bidder organisations:

• Monitor local council press releases: in the coming months, many English councils may issue statements on how the Local Government Settlement will integrate into existing budgets – leading to the creation of new or updated contracts and framework agreements, and more opportunities to grow your business.
• Prepare for longer-term contracts: given the new financial stability, councils may take the opportunity to capitalise on creating longer-term programmes. When tenders from local councils are released, make note of the total contract length (including extensions) – an increase in 5- and 10-year agreements may become the norm, in place of more typical 2-year contracts with 2 x 12-month extensions. The impacts of this should be a critical part of your ‘bid/no-bid’
• Proactively engage with buyers: As part of the Procurement Act 2023’s implementation early last year, contracting authorities have conducted more robust pre-market engagement events and questionnaires as part of the tender process. Where appropriate, engage in these events to learn more about the contracts being released, ensuring you are ‘bid ready’ when the tender goes live.

Similar to other wider budget concerns, such as the Cabinet Office’s public procurement consultation and annual autumn budget, Executive Compass will continue to monitor how wider fiscal changes will impact public sector procurement.

For further information on the bid services we offer, one of our team is available for a free, 30-minute consultation at info@executivecompass.co.uk or via 0800 612 5563.