Official analysis indicates that proposed reforms to zero-hours contracts, championed by Labour's Angela Rayner, could cost businesses between £350 million and £2.9 billion annually. The measures, part of the Employment Rights Act, aim to provide workers with guaranteed shifts and compensation for cancelled ones. While the government analysis suggests a "small, positive impact on growth" through increased "worker wellbeing," it also concedes the reforms will raise administrative costs and reduce employer flexibility.
Sectors such as hospitality, retail, and healthcare, which often rely on flexible staffing to manage variable demand, are expected to be most affected. The reforms could make it more challenging for employers to adjust to fluctuations in demand, potentially impacting output. The overall net cost to the economy is estimated to be between £300 million and £1.4 billion per year.
The precise cost to businesses will hinge on the minimum number of hours a worker must be employed to be eligible for guaranteed hours. If this threshold is set between eight and 20 hours per week, as the government prefers, the direct costs to employers would be lower.
Industry representatives have voiced concerns that the reforms could lead to increased unemployment, particularly among young people. Tina McKenzie, head of the Federation of Small Businesses, noted that with over 150,000 fewer people on payrolls since the current government took office, small businesses were hoping for a more supportive conversation. She expressed worry that the unquantified costs of these policies could lead to a repeat of past economic difficulties.
Neil Carberry, chief executive of the Recruitment and Employment Confederation, suggested the government's cost estimate might be too low, particularly regarding compliance and processing expenses. He warned that an additional £2.9 billion in employment costs could exacerbate youth unemployment issues.
Kate Nicholls, head of UK Hospitality, stated that reforms that add significant costs, rather than incentivize employment, could disproportionately affect the hospitality sector, which employs many young, part-time, and non-graduate workers. A government spokesperson affirmed a commitment to ending exploitative zero-hours contracts and providing workers with greater income security and predictability of hours, adding that consultations are underway to refine the details and ensure the reforms are practical.