Labour workers’ rights concessions to cut cost to business by billions, analysis shows | Politics
The government’s own analysis shows that by watering down Labour’s sweeping overhaul of workers’ rights, the plan is expected to cut the cost to UK businesses by billions of pounds.
Concessions by ministers could reduce the cost of the employment rights bill to businesses by around £1bn, according to an updated Whitehall impact assessment published on Wednesday.
An earlier version of the document suggested the package, which includes day-one employment rights and a ban on zero-hours contracts, could cost firms up to £5bn.
In its revised analysis, the government said the new lower estimate reflected the decision to phase the changes in over a number of years and “the fact that policy design and evidence have improved” since its last assessment in October 2024.
Labour’s employment rights bill was finally signed into law last month after a long legislative battle in the House of Lords, fierce lobbying from business and a last-minute U-turn from the government on a key element of the plan.
Ministers, who sparked outrage among backbench MPs in direct breach of Labour’s manifesto, have abandoned plans to give workers the right to claim unfair dismissal on day one, instead offering a six-month threshold.
The concession, aimed at breaking parliamentary deadlock to enable other key legislative improvements on employment rights to progress, follows a deal between the UK’s six largest business groups and unions. But some union leaders, including Unite general secretary Sharon Graham, said the bill had now become “a shell of its former self”.
Meanwhile, some business leaders and Conservatives have complained that the legislation still carries unacceptable costs for businesses at a time of tax rises, a weak economic outlook and rising unemployment.
Publishing its updated review, the government acknowledged businesses will pay more, including sweeping changes to sick pay, paternity leave and administrative costs.
But he argued that the additional costs “will not represent a modest increase” for employers and that the benefits would outweigh the short-term cost.
“To contextualize the size of this impact, total employment costs in the UK were nominally £1.4 trillion in 2024. This means the estimated increase represents around 0.1% of the UK’s total wage bill, rising to less than 0.4% if we use [the] “The previous cap scenario,” he said.
The analysis showed that a revised 18 million workers could benefit from the strengthened rights package; This figure is up from the previous estimate of about 15 million. It said those on the lowest wages in sectors such as social care, hospitality and retail would benefit the most.
The report also stated that the bill would help increase employment by approximately 0.1%, improve job quality, productivity and create fairer competition between companies. It said the changes could have a “small, positive direct impact” on UK economic growth.
A government source said: “This legislation will transform the experience of millions of workers, particularly young people and women. As this analysis shows, the benefits of these changes will outweigh their costs and will be felt by workers across the country.”
