Councils to receive £1bn windfall 'to create jobs and growth' under Labour overhaul

The reforms mark the Government's latest attempt to reduce administrative barriers that have made it difficult for smaller firms to access public sector contracts.

Ministers aim to boost regional economies by ensuring greater portions of public spending remain within local communities.

Under the new arrangements, authorities will be able to set geographical boundaries when advertising lower-value contracts.

This will allow them to exclude international competitors from bidding, representing a shift towards strengthening local supply chains.

English councils, police authorities and fire services will gain the power to limit tender competitions for below-threshold contracts to suppliers based either within the United Kingdom or within specific local regions.

The voluntary system will give public bodies discretion to define what constitutes a local supplier according to the needs of their areas.

Changes are aimed specifically at lower-value procurements, creating additional opportunities for domestic firms to compete without facing international bids. Each authority will be free to determine its own local boundaries, enabling procurement policies tailored to individual communities.

The updated regulations extend procurement flexibilities already available to central Government departments. By aligning local authority powers with those previously held by Whitehall, the reforms introduce consistency across the public sector for contracts that fall below EU procurement thresholds.

Chris Ward, parliamentary secretary at the Cabinet Office, said the reforms would strengthen communities.

"We're changing the rules that have held back councils from investing in local businesses that are the lifeblood of local economies.This will put power back in the hands of our communities to drive growth, unlock skilled jobs and create local investment that rewards working people."

Alison McGovern, minister of state for local Government and homelessness, said the reforms supported wider ambitions for economic growth.

Ms McGovern said: "We want councils to help create jobs, opportunities and growth right across the country".

She added that prioritising domestic firms would support that goal. Ms McGovern said: "Making sure they can prioritise our brilliant local businesses is a huge step forward in achieving that, and will mean more money going to firms that know their areas best and can invest in the communities they serve."

The legislative changes involve disapplying parts of the Local Government Act 1988, including section 17(5)(e), in specific circumstances.

This will allow authorities to favour local suppliers while maintaining competitive tendering and fiscal responsibility for below-threshold contracts.

Officials said the regulations will align local procurement practices with flexibilities already used by central Government.

The announcement follows the National Procurement Policy Statement published in February, which encouraged public bodies to consider social and economic outcomes in their purchasing decisions.

During consultations earlier in the year, the Government examined how routine public sector spending could create greater opportunities for small enterprises and social businesses.

The consultation explored ways to support employment, develop workforce skills and generate social value through everyday procurement choices.

Tina McKenzie, policy chair of the Federation of Small Businesses, welcomed the reforms.

Ms McKenzie said: "It's great to see the Government listening to small businesses and taking action. This is exactly the kind of practical reform we called for - giving local authorities the tools to make it easier for small firms to take on public work".

She said smaller firms were well placed to deliver local services. Ms McKenzie said: "Small firms bring deep local knowledge, strong community ties and specialist skills.

"When the system clears unnecessary hurdles and lets them compete on fair terms, the whole community benefits.

"Today's announcement is a welcome sign that those barriers are finally starting to come down."

Councillor Dan Swords, who chairs the LGA's Public Service Reform and Innovation Committee, said the reforms would benefit local economies.