Rayner’s overhaul of workers’ rights could cost employers up to £5bn a year, the government has warned
Angela Rayner’s ambitious changes to workers’ rights could cost UK employers nearly £5 billion in extra costs each year, according to an impact study published by the government.
These changes, proposed in the Employment Rights Bill, could cause businesses to raise prices, cut wages, or reduce investment as they face significant increases in operating costs.
Government analysis estimated the annual cost to businesses at £4.5 billion, but warned that the total impact could rise to £5 billion. This comes as companies are facing the prospect of tax increases, as Chancellor Rachel Reeves is expected to increase employer National Insurance Contributions (NICs) in the upcoming Autumn Budget.
Business groups have criticized the measure’s proposed changes, warning they could stifle investment and hurt 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 hammer to crack a nut.”
Major changes to workers’ rights
Rayner’s proposed Employment Rights Bill aims to end zero-hours contracts, give workers the power to take employers to court from their first day on the job, and extend statutory sick pay. The deputy prime minister hailed the package as “the biggest improvement in workplace rights in a generation.”
However, the government’s analysis suggests that these changes come with 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 increase access to statutory sick pay.
Critics argue that the bill’s more expensive measures would have unclear benefits to society. The analysis noted that policies such as the right to guaranteed hours can impose significant costs on businesses while bringing only “guaranteed” benefits.
Industry impact and business concerns
The costs of the transition are expected to hit some sectors harder than others. Businesses in low-paying industries, such as retail, tourism, and social care, will likely bear the brunt of the additional financial burden. According to the analysis, these new measures could increase the total wages of UK businesses by 0.4%.
Kate Nicholls, CEO of UK Hospitality, warned of the potential consequences for the industry. “Since more than half of our operating costs are already covered by employment and wages, any addition to that will have a significant impact – on prices for the consumer and job opportunities for workers,” he said.
Small businesses are at greater risk, as they may have difficulty meeting the fixed costs associated with the new regulations. According to research by the Office for National Statistics (ONS), two-fifths of businesses plan to raise prices due to higher labor costs, while 17% expect to cut staff.
Broad economic consequences
Although Rayner’s reforms aim to raise living standards, the government’s impact assessment concluded that the bill would have only a “modest” positive effect on economic growth. The report highlighted that while some businesses may benefit from having a productive and secure workforce, others may cut back on investment or cut jobs to cope with rising costs.
Industry leaders, including Steve Alton, CEO of the British Institute of Innkeeping, urged the chancellor to provide support for affected sectors in next week’s budget. Alton warned that the new hiring costs would be “unaffordable” for many businesses without more help, particularly in the tourism sector, which is already facing huge pressures from revenue and high operating costs.
Sir Tim Martin, founder of JD Wetherspoon, has criticized the increasing levels of regulation and taxation on businesses, saying that excessive regulation stifles investment and prosperity. “There seems to be a belief that you can control your path to success. This belief will likely lead to less investment and less prosperity,” he said.
Balancing employee rights and business costs
Despite the concerns, Rayner remains committed to his reforms, saying millions of workers will benefit from stronger employment protections. “We said we would go ahead and deliver the biggest improvements in workplace rights in a generation and the growth our economy needs – and that’s exactly what we’re doing,” he said.
