LABOUR’S workers’ rights overhaul could cost businesses £5 billion a year, ministers have admitted.

The changes – including flexible working, paternity and sick leave from day one – could force up prices for consumers and lead to job cuts.

The warning comes in the so-called ‘impact assessment’ for the Employments Rights Bill – which was debated and voted on by MPs last night.

It is the first time the government has produced any estimated costs for the controversial measures.

The plans also include measures to ban exploitative zero-hours contracts and “unscrupulous” fire and rehire practices.

But an impact assessment published by the government has warned that the policies will “impose a direct cost on business of low billion pounds per year (i.e., less than £5 billion annually)”.

Total wage costs in the UK were £1.3 trillion in 2023 in nominal terms.

It also cites official surveys suggesting that 40 per cent of businesses would respond to higher labour costs by increasing prices, while 17 per cent would cut jobs.

Around a third would rely on profit margins to absorb the costs, the assessment said.

It also warns that costs will be “proportionately higher” for small and micro businesses as a result of admin costs and compliance burdens but says measures need to apply in the same way to avoid creating a “two-tier workforce” where where some workers get access to rights and others do not.

“Not only would this be unfair on those workers that lose out, but it would provide a disincentive for those small business to grow”, it adds.

The legislation could also “make employers less willing to hire workers”, something which could offset productivity gains achieved through more efficient employer and employee matching, the assessment warns.

“Likewise, more job switching could reduce incentives for employers to invest in firm specific learning and development”, it adds.

The legislation will also hand more power to trade unions, making it far easier for them to stage walkouts by scrapping years of anti-strike legislation introduced by the Tories.

However, the analysis says many of the policies within the Employment Rights Bill could help support economic growth, concluding it could have a “positive but small direct impact” on growth.

The Bill would also benefit people in more deprived areas of the country by saving them up to £600 in lost income from the hidden costs of insecure work, the government said.

Around 2.4 million people in the UK work irregular patterns like zero or low hours contracts or agency jobs, where insecure hours can mean forking out on expensive childcare or transport to cover last-minute shifts – or losing out altogether if work is changed or cancelled at short notice.

Deputy Prime Minister Angela Rayner said the legislation will “deliver the biggest upgrade to rights at work in a generation and the growth our economy needs”.

She said: “We’re delivering real change for working people across the country, while driving our mission for growth and making people better off. Successful firms already know that strong employee rights mean strong growth opportunities.

“This landmark legislation will extend the employment protections given by the best British companies to millions more workers.”

Business groups welcomed the Bill when it was introduced, with the CBI praising the government for engaging with business and unions.

But the Tories have warned the reforms will make firms more expensive to run, provoke industrial action and increase red tape.

In a letter to business chiefs, Shadow Business Secretary Kevin Hollinrake said: “Labour’s package of regulation will result in a tsunami of flawed regulation that will hinder investment and job creation.”