Government analysis highlights costs of banning zero-hours contracts
Outlawing zero-hours contracts could impose an annual cost on businesses of up to £3 billion, according to new Government analysis, reports BritPanorama.
The proposed workplace reforms are nevertheless expected to “support growth” by enhancing conditions for staff, an impact assessment published on Wednesday states. The total direct expense to employers resulting from the ban is estimated to lie between £350 million and £2.9 billion each year, with figures indicating an “indicative central” baseline of £1.1 billion.
Ministers are consulting on whether to extend measures to anyone working 48 hours a week; however, the official preference remains a threshold between eight and 20 hours.
Defending the reforms, ministers argue they will assist millions of workers facing uncertainty over their weekly hours and earnings. Unions state that a ban will afford greater security, especially concerning last-minute shift cancellations.
The Government’s analysis indicates that the proposals would mean workers might receive payments between £5 million and £1.2 billion due to entitlements related to shifted or cancelled hours.
The measures are anticipated to “support growth through improved worker wellbeing and engagement,” correlating with increased productivity. Notably, stress, depression, and anxiety accounted for 22.1 million lost working days in 2024/25, costing approximately £6.5 billion in lost output.
Retailers have expressed significant concern, stating that the outlined potential costs could represent “a hammer blow to young people’s job prospects.” Helen Dickinson, chief executive of the British Retail Consortium, noted, “The scale of these costs raises serious questions about whether the guaranteed hours reforms will actually deliver value for workers, with the cost to employers appearing hugely disproportionate to the benefits for employees.”
She also indicated that retailers would need to invest hundreds of millions of pounds to update their HR and payroll systems. Dickinson added, “These costs could not come at a worse time” given the recent rise in employers’ national insurance contributions.
Others, such as the British Chambers of Commerce, voiced concern over the timing of the cost analysis publication, which came “so late in the consultation process.” Kate Shoesmith, director of policy at the BCC, commented that the increased costs of proposed changes to zero-hours contracts would further strain businesses already struggling to survive.
Kate Nicholls, chairwoman of UKHospitality, emphasized the need for the Government to incentivize employment in the hospitality sector, which employs a significant number of young people. She stated, “Instead, these reforms add yet more cost, at a scale that far outweighs the cost benefits for employees.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation, raised concerns that the assessment “undercounts the compliance and process costs businesses will face.” He cautioned that the proposals risk undermining a vital segment of the labour market.
In contrast, a spokesperson for the Trades Union Congress argued that the Employment Rights Act would yield an estimated £10 billion boost to the economy, claiming, “Let’s stop the scaremongering. These are common sense reforms, which bring us closer to the European mainstream.”
Finally, a Government spokesperson reiterated the commitment to eradicating exploitative zero-hours contracts, stating, “These reforms will give workers in every postcode greater income security and predictability of hours.”
The ongoing debate continues to reflect the complexities of balancing worker rights with the operational realities faced by businesses in a challenging economic landscape.
