Key facts
- Labour's proposed reforms to zero-hour contracts could cost UK businesses up to £2.9 billion per year.
- The reforms include offering guaranteed-hour contracts, requiring reasonable notice for shifts, and paying for cancelled shifts.
- A government impact assessment suggests the net cost, considering economic benefits, will be between £300 million and £1.4 billion annually.
- The Federation of Small Businesses and other industry bodies have criticized the reforms as 'chaotic' and 'eyewatering'.
- The level of the hours-per-week threshold for claiming new rights is identified as a key driver of costs.
New reforms proposed by the Labour government regarding zero-hour contracts could impose significant financial burdens on British businesses, potentially costing up to £2.9 billion annually, according to a government impact assessment. The reforms include measures such as offering guaranteed-hour contracts to flexible employees, mandating reasonable notice periods for shift changes, and requiring employers to compensate workers for cancelled shifts.
The assessment outlines specific cost estimates for each component: the right to guaranteed hours could cost firms around £450 million per year, while rules on shift notice and payment for cancellations could add up to £1.2 billion and £1.3 billion respectively. A more conservative central costing scenario places the total likely cost at £1.1 billion per year.
However, the government also factored in alleged economic benefits, suggesting the net average cost to the economy could range between £300 million and £1.4 billion. Despite these projections, industry bodies have voiced strong opposition. The Federation of Small Businesses has criticized Labour's approach as 'chaotic' and warned of potential unemployment increases. Tina McKenzie, interim chair of the FSB, urged the government to pause the reforms.
Industry leaders highlighted that the actual costs could escalate due to additional administrative burdens and the need to update HR and payroll systems, with retailers estimating hundreds of millions for such upgrades. Helen Dickinson, chief executive of the British Retail Consortium, noted these costs come at a difficult time for retailers already facing increased employment expenses. Kate Nichols, chief executive of UK Hospitality, described the reform costs as 'eyewatering' and suggested the government should instead be incentivizing employment in the sector.