New workers' rights 'to cost firms £5bn a year'

Labour's plans to upgrade workers' rights will cost businesses up to £5bn a year to implement, according to the government's own analysis.

The new measures would have a disproportionate impact on smaller businesses, responsible for employing 13 million workers, the impact assessment report found.

However, the £5bn represented a "modest" amount, less than 1.5% of the total amount spent by businesses on employing staff, the report said.

Moreover, the "wellbeing" benefits of the measures, which include challenging the use of zero hours contracts and boosting sick pay, would amount to £3bn, it found.

The economic assessment report was prepared for MPs ahead of the second reading of the Employment Rights Bill on Monday.

The government says the legislation represents the biggest upgrade to workers’ rights in a generation.

It would guarantee new rights for workers from the first day of their employment including: sick pay, protection from unfair dismissal, parental and bereavement leave.

It also proposes banning what it calls "exploitative" zero hour contracts and strengthening trade union rights.

However, the report warns that the additional costs could lead to employers cutting their workforces, which could in turn ‘’weigh’’ on economic growth, the government's stated policy priority.

Ben Smith, from specialist employment law firm GQ|Littler, said it would be "painful" in the short term for businesses trying to cope with the extra red tape, while the longer term positive outcomes were harder to quantify.

Tina McKenzie, policy chair at the Federation of Small Businesses said: "As bad as these impacts seem, they still underestimate the real costs this legislation could have on growth and participation."

The Conservatives said the "french style" laws were sowing uncertainty, would cost hundreds of millions more in sick pay, and would result in firms shedding staff or passing costs on to customers.

Shadow business secretary, Kevin Hollinrake, said the government should look again at its "growth-killing bill, at the very least exempting small and medium-sized companies from these disastrous measures".

Paul Nowak, general secretary of the TUC, said the government's assessment showed the business costs from the Bill were negligible and more than offset by wider economic and social gains.

“These changes will mostly affect those companies whose business models have been built on low-paid, insecure employment.

“Decent employers will welcome these measures and the improvements they will bring for their businesses and workforces,” he said.

The report argues that the reforms could lead to fewer lost workdays, if employees feel less anxious about their pay and working conditions.

Quoting Health and Safety Executive figures, the report says depression, stress and anxiety led to 17 million working days being lost last year, costing the economy £5.2 billion in lost output.

Workers in the hospitality, health and social care, and retail sectors were set to benefit most, the report said, where insecure and low-paid work is more common.

Under the proposed legislation, employers that currently use zero hours contracts would have to offer staff contracts guaranteeing a set number of hours per week. That will be calculated based on the worker's average working hours over a 12-week period.

Around two million workers were set to benefit from the reforms, the report said, including a £400m a year increase in sick pay due to reforms to Statutory Sick Pay.