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

The initial £5 billion annual cost estimate, first reported earlier in the year, had sparked considerable debate and alarm within the corporate sector. This figure was largely driven by proposals such as granting all workers the right to claim unfair dismissal from their very first day in a job, a measure that businesses argued would create immense legal and administrative complexity, deter hiring, and expose them to excessive litigation risks. The analysis at that time had attempted to quantify the cumulative impact of various proposed reforms, including increased administrative costs, potential legal fees, and adjustments to HR policies across millions of UK businesses.

However, the political landscape and economic realities prompted a strategic rethink. Ministers, in what was described as a significant policy adjustment, announced they would drop the contentious plan for immediate unfair dismissal rights. Instead, the Employment Rights Act, as it is currently conceived, will introduce enhanced protections after a six-month qualifying period in employment. This pivotal change is widely regarded as the most impactful concession and a primary driver behind the reduced cost estimate. The shift aims to balance the desire for greater worker security with employers’ need for a reasonable probationary period to assess new hires without immediate fear of complex legal challenges.

Beyond the unfair dismissal clause, the updated analysis also factored in "clearer implementation timelines" and a more robust evidence base regarding the policies. This includes a commitment to phase in the overall package of reforms over several years, rather than a single, immediate rollout. Many of the proposed measures are still subject to further consultation and the creation of secondary legislation, allowing for a more staggered and potentially less disruptive introduction for businesses. These concessions were met with a cautious welcome from key business organizations, though they also drew fierce criticism from some left-wing Labour MPs and prominent trade union leaders who felt the reforms had been diluted.

The Employment Rights Act, even with its adjusted scope, is designed to bring about fundamental changes to the world of work. Key provisions include guaranteeing workers access to statutory sick pay and paternity leave from their first day on the job, a significant departure from current regulations that often require a qualifying period. Furthermore, the Act seeks to introduce new and stronger protections for pregnant women and new mothers, addressing long-standing concerns about discrimination and disadvantage in the workplace. These measures are intended to foster a more equitable and supportive working environment, particularly for vulnerable groups.

Despite the significant reduction in the estimated cost, the British Chambers of Commerce (BCC) remained skeptical, with Policy Director Kate Shoesmith asserting that the revised £1 billion figure "is likely to be a massive underestimate." Shoesmith argued that the impact assessment "doesn’t adequately account for the harder to quantify costs." She highlighted expenses such as the substantial staff time required for understanding and implementing new processes, training HR departments, and effectively communicating these complex changes to employees. The BCC’s argument is that while a six-month qualifying period for unfair dismissal certainly reduces costs compared to an immediate right, it does not eliminate the administrative burden or the potential for increased legal disputes entirely. Many businesses, particularly small and medium-sized enterprises (SMEs), operate with lean HR functions and could find even a £1 billion annual cost, distributed across the economy, to be a significant strain on their resources, potentially impacting their ability to grow and create jobs.

The political opposition quickly seized on the revised figures. Andrew Griffith, the Shadow Business and Trade Secretary, criticized the government’s handling of the proposals, stating, "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." Griffith’s rhetoric underscores the Conservative party’s consistent argument that increased regulation and employer costs inevitably lead to reduced hiring and job losses, particularly affecting younger and more vulnerable individuals entering the workforce. He reiterated the long-standing warning that even a £1 billion annual cost could act as a deterrent for businesses considering expansion or new hires, thereby stifling economic growth.

However, the updated impact assessment also projected several positive outcomes. It suggested that the Employment Rights Act would have a "small positive impact on employment," potentially boosting the number of people in work by 0.1%. While seemingly modest, this figure could translate into tens of thousands of new jobs across the UK economy. The rationale behind this positive projection often centers on the idea that enhanced worker protections can reduce staff turnover, improve morale, and make workplaces more attractive, thereby encouraging greater labour market participation. Furthermore, the analysis indicated that the new measures could contribute a "small, positive direct impact on economic growth." This could stem from increased consumer spending by more financially secure workers, improved productivity due to better working conditions, and a more stable, engaged workforce.

Crucially, the assessment also expanded the estimated number of workers who stand to benefit directly from the reforms, raising it from an earlier estimate of around 15 million to approximately 18 million. This broader reach highlights the potential for widespread positive impact across various sectors and demographics.

Trade unions, while having expressed reservations about some of the concessions, largely welcomed the latest impact assessment. They emphasized that the reforms, even in their revised form, would bring "significant benefits to UK workers, our economy and wider society." The Trades Union Congress (TUC), a leading voice for organized labour, reiterated its long-held position that stronger rights at work are "good for workers and employers – driving up labour market participation, improving health, raising productivity and boosting demand." Paul Nowak, the TUC’s General Secretary, urged ministers to "finish the job as soon as possible," stressing the importance of ensuring that the secondary legislation required to implement these measures is "watertight" and effectively delivers on the promises made.

Mike Clancy, General Secretary of the Prospect trade union, echoed this sentiment, stating, "This impact assessment is clear that the Employment Rights Act is good for workers, good for growth, and good for wider society." Clancy specifically highlighted the value of "sensible compromises agreed between Government, businesses, and trade unions," asserting that these negotiations were intended to make the legislation "more workable for all parties, while still delivering robust protections for workers," a goal he believes the report clearly demonstrates has been achieved.

The Department for Business and Trade (DBT), which spearheaded the impact assessment, maintained that the Employment Rights Act would "transform the world of work, delivering stronger protections and higher living standards." A spokesperson for the DBT elaborated on the expected benefits, stating, "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." This official stance underscores the government’s belief that while there are costs associated with these reforms, the long-term economic and social benefits, including a more engaged and productive workforce, outweigh them. The nuanced approach, incorporating business feedback and staggering implementation, suggests an effort to navigate the complex balance between enhancing worker welfare and maintaining a competitive business environment. The ultimate success of the Act will depend on its effective implementation and the ongoing cooperation between all stakeholders.