The employment rights bill will have a net-positive effect on society if its policies are well-designed, economic analysis by the Department for Business and Trade has found.
Officials’ analysis of the bill, which contains a group of policies described by Labour as the “biggest upgrade to rights at work for a generation”, concludes that its net social value over the next 10 years is -£2.8bn, or -£280m per year, but that the non-monetised benefits outweigh these costs.
Policies in the bill include:
- Bringing in more day-one rights at work, such as sick pay and unfair dismissal
- Changing zero-hour contract law so that workers have a right to a contract that reflects the number of hours they regularly work
- Banning "fire and rehire", except in limited cases
- Making flexible working the default from day one
- Repealing the previous government's minimum service levels act
- The creation of a new single enforcement body, known as a Fair Work Agency, to strengthen enforcement of workplace rights.
The analysis says the package of worker rights policies “will be significantly positive for society (i.e., the benefits will outweigh the costs) if the implementation of its policies is well-targeted and risks of unintended consequences are mitigated through consultation and policy design”.
As well as the yearly estimated cost to society of £280m, the analysis also estimates a yearly £0.9bn cost to businesses and a yearly £0.5bn benefit to households. But it says these figures “should not be interpreted as our assessment being that the package will be negative for society, rather more we cannot robustly estimate many of the benefits at this stage”.
What are the non-monetised benefits?
Health and wellbeing benefits from better quality of work, stronger protections in the workplace and greater income security will have the most significant non-monetised impact for workers, according to the document.
“Low quality and insecure work can adversely impact health and wellbeing, so the measures are likely to have a significant positive impact on the c.2 million workers who report feeling anxious about hours worked or shifts changing unexpectedly,” the analysis says.
The document also points to Health and Safety Executive estimates that stress, depression or anxiety accounted for 17.1 million working days lost in 2022-23. It says there is “evidence this is concentrated in some of the sectors impacted by the bill, e.g., health and social care and education”.
These health and wellbeing benefits “could be worth billions of pounds a year” to individuals, according to the analysis.
For employers, the document says the most significant non-monetised impacts will be the reduction in flexibility in workforce planning from introducing greater protections on variable hours contracts and increasing dismissal protections for workers. It adds that employers will also likely face increased liability against defending Employment Tribunal claims.
The analysis also finds there could be range of wider impacts on society, such as:
- A more "level playing field" for businesses by making it more difficult for competitors to gain an unfair advantage by underpaying workers and not meeting their legal obligations.
- A reduction in the number of workforce disputes, which costs UK employers around £28.5bn a year, according to 2021 research by ACAS.
- A reduction in days lost to strike action if trade union reforms lead to better industrial relations, reducing costs on the economy – recent DBT analysis estimated that NHS strikes in 2023-24 cost the government £1.7bn.
- A greater pool of workers for employers to hire from if modernising rights encourages more workers to participate in the labour market. There are currently 369,000 people aged 16-64 who are economically inactive because they are looking after family or their home, but would like a job. Likewise, the package could make work more attractive for older workers, who have been dropping out of the labour market at a faster rate since the pandemic.
The document says these benefits are harder to quantify robustly but that “were even some of these benefits to be realised then they would mean the bill is significantly net positive for society”.
Growth impact ‘small’
On growth, one of Labour's key focuses, the analysis is less optimistic that the bill will have a significant impact. It says the package "could have a direct and positive impact on economic growth, but we expect this to be small".
However, it says the package will “help to raise living standards across the country and create opportunities for all” and has “clear links” to other government ambitions, such as reducing the number of people who are inactive in the labour market, reducing child poverty, and tackling inequalities across the UK.
And it says not acting "would enable poor working conditions, insecure work, inequalities and broken industrial relations to persist".