Workers’ rights reforms will cost billions less after concessions, analysis shows

A series of concessions on Labour’s flagship workers’ rights reforms will cut the cost to firms adopting them by billions of pounds, a government impact assessment shows.

An initial analysis by officials found that implementing the party’s measures to bolster workers’ rights would cost firms up to £5bn a year.

However, an updated analysis on Wednesday, which took into account major concessions made by ministers, said it will now cost companies £1bn a year.

The concessions were welcomed by business groups, but faced fierce criticism from some left-wing Labour MPs and union leaders.

The Employment Rights Act will give workers access to sick pay and paternity leave from the first day on the job and introduce new protections for pregnant women and new mothers.

In November, Labour dropped plans to give all workers the right to claim unfair dismissal from their first day in a job. Instead, it will bring in enhanced protections after six months in employment, the bill’s most significant measure.

Alongside concessions on unfair dismissal, the government will phase in the overall package over several years, with many of the measures still subject to consultation and secondary legislation.

The revised impact assessment also said the lower cost estimate reflected “clearer implementation timelines” and more available evidence about the policies.

But the British Chambers of Commerce said the £1bn figure “is likely to be a massive underestimate”.

Policy director Kate Shoesmith said: “The impact figure doesn’t adequately account for the harder to quantify costs. Those include staff time for understanding and implementing new processes or explaining these to colleagues.

“Concessions such as introducing the six-month qualifying period will reduce costs – but not on the scale this latest assessment suggests.”

The shadow business and trade secretary, Andrew Griffith, said: “The government spent a whole year denying it, but even after they fudged the figures to favour them, the truth is clear: their Unemployment Act will cost businesses billions.

“They have also been forced to admit it will cost young and vulnerable people their jobs – just as we always warned.”

The latest impact assessment also said the Employment Rights Act would have a small positive impact on employment, boosting the amount of people in work by 0.1%.

It also said the new measures could have a “small, positive direct impact on economic growth”.

Meanwhile, stronger workers’ rights could benefit about 18 million workers, up from an earlier estimate of around 15 million, the analysis showed.

Trade unions welcomed the latest impact assessment, saying it would bring “significant benefits to UK workers, our economy and wider society”.

The Trades Union Congress (TUC) said stronger rights at work are “good for workers and employers – driving up labour market participation, improving health, raising productivity and boosting demand”.

Its general secretary Paul Nowak called for ministers to “finish the job as soon as possible”, warning that secondary legislation to bring in the measures must be “watertight”.

Mike Clancy, general secretary of the Prospect trade union, said: “This impact assessment is clear that the Employment Rights Act is good for workers, good for growth, and good for wider society.

“The sensible compromises agreed between Government, businesses, and trade unions were intended to make this legislation more workable for all parties, while still delivering robust protections for workers, and this report clearly demonstrates the success of that approach.”

The Department for Business and Trade (DBT) said the Employment Rights Act will “transform the world of work, delivering stronger protections and higher living standards”.

A spokesperson said: “By making work pay, and more secure, this new analysis demonstrates how it will boost productivity, cut staff turnover, and put more money in the pockets of working people.”