A recent government report indicates that Labour’s proposed workers’ rights package could impose an additional £5 billion in annual costs on businesses, particularly affecting small firms disproportionately. The bill, which is currently undergoing its second reading in Parliament, introduces significant reforms, including a ban on “exploitative” zero-hours contracts, immediate rights against unfair dismissal, and enhanced rights for unions to access workplaces.
In light of the potential increase in employers’ national insurance contributions anticipated in the upcoming budget, the British Chambers of Commerce has raised alarms about companies facing a “mountain of additional costs.” The report suggests that most of these costs will translate into a financial burden from businesses to their employees.
According to the assessment, small businesses are expected to bear the brunt of these changes, with many companies likely to respond by raising prices and reducing staff numbers. The reforms could also lead to a rise in strikes, as they aim to repeal existing anti-trade union laws and extend the validity of industrial action ballots from six to twelve months.
Despite the projected costs, the Department for Business and Trade claims the reforms are “pro-growth,” arguing that any adverse impact on businesses would be balanced by increased productivity, more individuals entering the labor market, and better compensation for workers. The report anticipates substantial societal benefits, including improved health and well-being, enhanced equality, greater competition, and increased participation in the workforce.
Deputy Prime Minister Angela Rayner described the proposed reforms as a “momentous opportunity” to reshape the UK economy, asserting that over ten million workers will stand to benefit from Labour’s initiatives.
The bill aims to enhance working conditions across the board, introducing provisions for guaranteed hours, default flexible working arrangements, sick pay from the first day of illness, and new rights for parental and bereavement leave. A recent business survey revealed that 40% of companies would address the anticipated higher costs by raising prices, while 17% might reduce their workforce, and 31% would opt to absorb the costs. Implementing sick pay from the first day of illness alone is estimated to cost businesses approximately £400 million.
The assessment highlights that small businesses will be most significantly impacted by the new regulations, with five out of the nine major measures disproportionately affecting them. However, it notes that much of the added expense will stem from the need for employers to familiarize themselves with the new legislation and manage compliance costs. These costs are expected to peak in the short term before gradually decreasing.
The reforms are likely to disrupt businesses that rely heavily on flexible contracts, particularly in lower-paying sectors. The burdens will be proportionately greater for medium-sized and smaller enterprises due to the fixed costs associated with administrative and compliance obligations. Conversely, the benefits for workers are projected to be most pronounced for those in low-paid sectors with insecure employment conditions.
Ministers have dismissed proposals for relaxed regulations for small businesses, arguing that such measures would create a “two-tier” workforce. The bill applies to all areas except Northern Ireland, where employment law is governed separately.
Tina McKenzie of the Federation of Small Businesses expressed concern about the potential risks the new measures pose to the economy, employment, and wages, urging the government to provide support to mitigate these threats to small firms.
Conversely, Paul Nowak, the general secretary of the Trades Union Congress (TUC), defended the bill, stating that the impact assessment shows the business costs are minimal and will be outweighed by broader economic and social benefits. He added, “These changes will primarily impact companies that have thrived on low-paid, insecure employment. Responsible employers will welcome these measures.”
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