Angela Rayner’s ambitious reform of workers’ rights could burden UK employers with nearly £5 billion in extra costs every year, according to an impact assessment published by the government.
The reforms proposed in the Employment Rights Bill could lead companies to raise prices, cut wages, or reduce investment as they face a significant increase in operating expenses.
The government’s analysis estimates the annual cost to businesses at £4.5bn, but warns the total impact could rise to £5bn. It comes as businesses are already facing a looming tax rise, with Chancellor Rachel Reeves expected to raise employers’ National Insurance Contributions (NICs) in the upcoming Autumn Budget.
Business groups have criticized the scale of the proposed changes, warning that they could hinder investment and harm growth. In a meeting with Kevin Hollinrake, the shadow business secretary, leaders of major organizations including the Confederation of British Industry (CBI) and the British Chambers of Commerce expressed concern about the potential economic impact. One attendee described the government’s approach as using a “sledgehammer to crack a nut.”
Radical changes in workers’ rights
Rayner’s proposed employment rights bill aims to end exploitative zero-hours contracts, give workers the ability to take their employers to court from their first day on the job, and extend statutory sick pay. The Deputy Prime Minister praised the package as “the biggest upgrade to rights at work in a generation”.
However, the government’s analysis suggests that these changes come at significant costs. The bill is expected to cost businesses £1 billion a year to end zero hours contracts, £1 billion to compensate workers for shifts canceled at short notice, and up to £1 billion to expand access to statutory sick pay.
Critics argue that the bill’s more costly measures may have unclear benefits to society. The analysis noted that policies such as the right to guaranteed working hours could impose significant costs on companies while offering only “uncertain” benefits.
Sectoral impact and business concerns
The costs of reforms are expected to affect certain sectors more strongly than others. Businesses in lower-paid industries, such as retail, hospitality and social care, are likely to bear the brunt of the additional financial burden. According to the analysis, the new measures could increase the overall wage bill of UK companies by 0.4%.
Kate Nicholls, chief executive of UK Hospitality, warned of the potential consequences for the industry. “With staffing and wages costs already accounting for more than half of our operating costs, any addition to that will have a net impact – both on prices for the consumer and on employment opportunities for employees,” she said.
Small businesses are particularly vulnerable, because they may struggle to absorb fixed costs associated with new regulations. According to a study by the Office for National Statistics, two-fifths of companies plan to raise prices in response to rising labor costs, while 17% expect to reduce headcount.
Wider economic impacts
While Rayner’s reforms aim to raise living standards, the government’s impact assessment concluded that the bill would have only a “negligible” positive impact on economic growth. The report stressed that while some companies may benefit from having more productive and safe workers, others may reduce investment or reduce jobs to confront rising costs.
Industry leaders, including Steve Alton, chief executive of the British Institute of Lodge Conservation, called on the Chancellor to provide support to affected sectors in next week’s Budget. Alton warned that the new hiring costs would be “unaffordable” for many businesses without additional relief, especially in the hospitality sector, which has already faced significant pressures due to inflation and rising operating costs.
Sir Tim Martin, founder of JD Witherspoon, has criticized increasing levels of regulation and corporate taxation, arguing that excessive regulation stifles investment and prosperity. “There seems to be a belief that you can organize your way to prosperity. This belief will almost certainly lead to less investment and less prosperity.
Balancing workers’ rights and business costs
Despite the concerns, Reiner remains committed to her reforms, noting that millions of workers would benefit from stronger employment protections. “We said we would keep working and deliver the biggest upgrade to rights at work in a generation and the growth our economy needs – and that’s exactly what we’re doing,” she said.