Angela Rayner’s flagship worker’s rights reform may cost businesses far more than the £5billion ministers claim and lead to wage cuts and job losses, an official watchdog said today.
The Regulatory Policy Committee today lashed out at the rationale used by the Department of Business and Trade to justify the changes made in the Employment Rights Bill.
It suggested that the figures used for the financial impact may need ‘clarifying’, and that the cost of an agreement on adult social care pay may be ‘much higher’ than the £1billion DBT claimed.
And in a report today it added that the estimate ‘does not account for the likelihood employers may offset the costs of regulation and mandated benefits through wage adjustments, benefit reductions or other compensatory mechanisms which would eventually be borne by the employee.’
‘There may also be negative impacts on recruitment, including from employers potentially adopting labour-saving technological measures such as AI systems and self-service check outs,’ it added.
Tina McKenzie, Policy Chairwoman of the Federation fo Small Businesses, said: ‘Red rating after red rating demonstrates that the proposed legislation has simply not been thought through.
‘This is a sharp wake-up call for Ministers who must think again about the dangers of a cavalier approach to jobs and work. The country cannot afford to pile further cost and risk on to small employers based on such an overwhelmingly weak evidence base.
‘With the red-flagged impact assessments including high-impact measures like formal dismissal from day one, the Government must urgently do the basic work required to understand the impact of its own policies and accurately quantify the likely impacts on employers and the labour market.
‘Parliament must step up and make sure it is challenging Ministers’ approach to such consequential legislation. Jobs, wages and living standards will suffer if Government fails to bring forward sensible policy or do the work to understand how and to what extent it is making employment harder and harder to provide.’
The Deputy Prime Minister, alongside Business Secretary Jonathan Reynolds, has championed the legislation, which hands staff a slew of new rights regarding sick pay, flexible working and paternity leave, as well as rolling back anti-strike laws.
It was passed with a majority of 281 in October, meaning it is almost certain to become law. But the RPC rated the impact assessment carried out on the legislation ‘not fit for purpose’.
The report added: ‘Given the number and reach of the measures, it would be proportionate to undertake labour market and broader macroeconomic analysis, to understand the overall impact on employment, wages and output, and particularly, the pass-through of employer costs to employees.’
The Bill passed its second reading late in October, with 386 voting in favour, 105 against.
Ms Rayner was harangued by Tories in the Commons as she insisted it would have a ‘positive impact on growth’.
The economic analysis of the Bill published by the Department for Business and Trade showed it is expected to ‘impose a direct cost on businesses of low billion pounds per year (i.e less than £5 billion annually)’.
It goes on to say that the plans are expected to add ‘less than 1.5 per cent’ to employment costs overall.
Policies such as day-one protections from unfair dismissals and ensuring guaranteed hours on zero-hours contracts are ‘likely to have a disproportionate cost to small and micro businesses’, according to the impact assessment.
Additionally, the document shows that changes to paternity leave will result in small businesses bearing 35 per cent of the costs, while only accounting for 29 per cent of employees. It also notes that 74 per cent of small businesses employ at least one worker with a flexible contract, meaning that many will be hit with an ‘administrative burden’ following the changes.
Proposed changes to statutory sick pay of removing the lower earnings limit and waiting period are also expected to have ‘a disproportionate cost to small and micro businesses’.
It is the first time the government has produced any estimated costs for the controversial measures.
The assessment cites official surveys suggesting that 40 per cent of businesses would respond to higher labour costs by increasing prices, and 17 per cent would cut jobs. Nearly a third would use profit margins to absorb the costs.
Today the RPC said: Overall, [we have] a low level of confidence in the estimated direct impacts included in the IA.’
A Government spokesman said: ‘This government has delivered the biggest upgrade to people’s rights at work in a generation. Our plan to Make Work Pay sets out an ambitious agenda to ensure employment rights are fit for a modern economy, empower working people and ensure working people are better off.
‘These initial, indicative assessments of the primary legislation represent the best estimate of likely impact at this stage. However, we intend to refine our analysis and conduct further assessment as the Bill progresses – working with experts and businesses.’