Zero Hours Contract Reforms Could Cost Businesses £3bn and Push Up Unemployment, Government Warned
The Federation of Small Businesses (FSB) has warned that the Government’s proposed overhaul of zero hours contracts could damage the jobs market, after an official impact assessment revealed the changes could cost businesses up to £3 billion.
The Government’s own Impact Assessment of the reforms shows that businesses will face substantial new costs, raising concerns that the changes could push up unemployment and narrow pathways into work for jobseekers, particularly those trying to enter the labour market for the first time.
Responding to the assessment, Tina McKenzie, interim National Chair of the FSB, said the Government risked repeating past mistakes if it continued with what she described as a “chaotic approach” to employment reform.
“The new Government risks the same old soaring unemployment if it carries on the same old chaotic approach to employment reform,” she said.
McKenzie pointed to figures showing more than 150,000 fewer people on payrolls since Labour came to power, arguing that small businesses had hoped for a more constructive relationship with the Government.
“Small businesses have been hoping that the new Government would follow the Prime Minister’s lead and start a more positive conversation with businesses – not sneaking out a multi-billion pound cost to business without even bothering to quantify the number of people who will be left out of work claiming benefits as a result of policies that make no sense,” she said.
She added that flexible working arrangements, including zero hours contracts, play a vital role in helping people access employment in the first place.
“The Government needs to recognise that employers having people on their books – without guaranteeing a set number of hours – is part and parcel of how many people enter work,” McKenzie said.
The FSB chair called on ministers to pause the reforms and reconsider their approach before further harm is done.
“If the new Government is going to be able to look those seeking work in the eye, it needs to pause these wrong-headed reforms before they damage workplaces, workers, and those out of work. Ministers should take political ownership to find a positive-sum solution. Small businesses are keen to give the new Government a chance, but not to allow the last jobs horror show to repeat itself,” she said.
Hospitality Sector Warns of “Eyewatering” Additional Costs
The warning was echoed by UKHospitality, whose Chair, Kate Nicholls, said the timing of the reforms could not be worse for a sector already struggling under the weight of rising employment costs.
“The eyewatering cost of these reforms comes at the worst possible time for hospitality businesses, arriving on the heels of more than £5 billion in additional employment costs in the past two years,” Nicholls said.
She noted that more than 100,000 hospitality jobs have already been lost, with high employment costs continuing to limit opportunities for people entering the workforce, particularly younger workers.
“More than 100,000 jobs have already been lost in hospitality as a result and the extraordinarily high cost of employment continues to restrict job opportunities, particularly for young people. This is on top of hospitality being disproportionately hit by business rates and our high rate of VAT,” she said.
Nicholls argued that hospitality’s role as one of the country’s largest employers of young people, part-time workers and non-graduates meant the sector should be supported rather than burdened with further costs.
“The Government should be incentivising employment in hospitality, as a sector that employs the most young people, most part-time workers and the most non-graduates,” she said.
She warned that the proposed reforms would add further costs to businesses that outweigh any benefit to employees.
“Instead, these reforms add yet more cost, at a scale that far outweighs the cost benefits for employees,” Nicholls said.
Nicholls called for closer collaboration between the Government and the hospitality sector to address the rising cost of employment.
“It’s critical the Government works with sectors like hospitality to reduce the cost of employing people and incentivise employment, rather than increasing costs and risking further lost job opportunities,” she concluded.