Labor’s flagship workers’ rights reform has cut costs for British businesses by billions of pounds after ministers significantly weakened the legislation, according to an updated government analysis.
A revised Whitehall impact assessment published on Wednesday estimates that the employment law will now cost employers around £1bn, a significant reduction from previous forecasts which put the figure at up to £5bn.
The government said the lower estimate reflected a number of late-stage concessions, including the gradual introduction of reforms over several years and changes made as policymaking and evidence evolved since the original assessment was published in October 2024.
The law, which was finally passed last month after a long battle in the House of Lords, includes reforms such as tougher rules on zero-hours contracts, higher sick pay and changes to parental leave. However, one of Labour’s most controversial election promises, to give workers the right to claim unfair dismissal from day one, was dropped at the last minute.
Instead, ministers introduced a six-month waiting period, a move that helped break parliamentary deadlock but angered some Labor backbenchers and unions. Unite general secretary Sharon Graham previously described the final legislation as “a shell of its former self”.
The concession came following negotiations with six of the UK’s largest business groups and unions, but failed to fully satisfy employer groups. Kate Shoesmith, director of policy at the British Chambers of Commerce, said the revised £1 billion estimate was “likely to be a massive underestimate”.
She warned that the government’s figures did not capture costs that were harder to quantify, including the time management spent understanding the new rules, training staff and implementing revised processes. While the six-month unfair dismissal period would reduce costs, she said, it was “unlikely to do so to the extent proposed”.
The government has acknowledged that employers will face higher costs, particularly through changes to statutory sick pay, paternity leave and additional administrative burdens. However, it has been argued that the impact would be small compared to the wider economy.
“To illustrate the scale of this impact, the total cost of employment in the UK was £1.4 trillion in nominal terms in 2024,” the assessment said. “This means the estimated increase represents around 0.1% of the total UK wage bill.”
The revised analysis also increases the number of workers expected to benefit from the reforms to around 18 million, up from a previous estimate of 15 million. The biggest increases are expected among low earners in sectors such as social services, hospitality and retail.
Paul Nowak, general secretary of the Trades Union Congress, said the changes would bring the UK closer to international standards. “Crucially, the legislation gives working people the higher standards of living and secure incomes they need to build a decent life,” he said.
The assessment concludes that the reforms could increase employment by around 0.1%, improve the quality and productivity of jobs and provide a small positive boost to economic growth. A government source said the updated figures showed the benefits of the reforms outweighed the costs, particularly for younger workers and women.
