The Government has announced a rapid review of its Local Government Reorganisation (LGR) programme following updated legal advice. The review will consider both whether the current process is robust and legally sound, and whether the proposals align with the priorities of the new administration. We will update clients as soon as further information is announced, but based on what we know so far, we have provided an update below.

Four previously announced LGR decisions (covering Essex, Hampshire, Norfolk and Suffolk) have been withdrawn and implementation in a further 16 areas has been paused while the Government reviews the position following updated legal advice.

The Government has also indicated that local elections in May 2027 will proceed on existing council boundaries, except where an area is sufficiently advanced to proceed with elections on the proposed new unitary authority boundaries. This represents a change from the previously anticipated LGR timetable and adds further uncertainty around the timing of implementation.

What this means for councils and tax

The announcement creates additional uncertainty around the future structure and timing of LGR. Councils should now review their LGR tax workplans, prioritising work that can continue regardless of the outcome while keeping structure-dependent decisions under review.

Work that should continue now

There is significant VAT and employment tax work that remains relevant regardless of any changes to the final structure or timetable. This includes reviewing historic VAT positions and recovery opportunities, Options to Tax, capital projects and the Capital Goods Scheme, partial exemption calculations and methods, trading activities, payroll systems and data readiness, off-payroll working and contingent labour arrangements, expenses and benefits processes, CIS compliance, and wider tax governance and controls.

Work that should be prepared but kept flexible

For matters such as VAT registrations and deregistrations, transfers of activities and assets, workforce transfers, payroll consolidation, alignment of expenses and benefits arrangements, and future approaches to off-payroll working, CIS administration and trading arrangements, councils should continue to gather information and undertake the necessary analysis, while keeping decisions that may need to be revisited if the structure or timetable changes under review.

Decisions that should await further clarity

Where the tax treatment is directly dependent on the final structure, boundaries or vesting arrangements, councils should consider whether it is appropriate to defer the final decision until the Government provides further clarity.

The key thing is not to stop LGR tax preparation, but to prioritise work that remains valuable regardless of the outcome and keep structure-dependent decisions under review.

Surrey LGR is continuing

Surrey’s LGR programme is continuing towards vesting on 1 April 2027. The Government’s latest announcement does not currently change Surrey’s implementation timetable.

PSTAX will continue to monitor developments closely and provide further updates as the Government clarifies the position. If you would like to discuss the implications for your authority’s LGR tax workplan, please contact Stephanie Leitch, PSTAX Director for Public Sector Reform, at stephanie.leitch@pstax.co.uk.