Labour's ban on zero-hours contracts could cost British businesses £2.9billion a year

Hospitality workers, care staff, and those working in the arts are expected to be among the most affected by the reforms

Hospitality workers, care staff, and those working in the arts are expected to be among the most affected by the reforms

Labour's drive to stamp out zero-hours contracts could land British businesses with a bill of up to £ 2.9billion a year, the government's own impact assessment has revealed.

Currently, 1.24 million people across the country work on zero-hours contracts, a figure that has risen by nearly 200,000 since Labour entered Downing Street in July 2024.

The reforms would require employers to offer workers guaranteed minimum hours and pay compensation when shifts are cancelled at short notice.

Businesses in sectors such as hospitality, health and social care, and the arts are expected to face some of the biggest costs.

Official documents show the changes could cost employers as much as £2.9billion a year.

Offering workers guaranteed hours could cost businesses up to £450million annually.

New rules requiring employers to give reasonable notice when shifts are changed could add another £1.2billion to the bill.

Compensation payments for shifts cancelled or altered at short notice could add a further £1.3billion.

Under a more moderate scenario, the government's central estimate puts the likely annual cost at roughly £1.1billion.

The single biggest factor determining the final bill is where ministers set the weekly hours threshold for workers to qualify.

Extending the right to a fixed-shift pattern to those regularly working up to eight hours would cost around £350million, but broadening it to cover anyone working up to 24 hours pushes the total to £2.9billion.

The government is even consulting on a threshold as high as 48 hours per week.

A consultation on the proposals closes next week, with no final decisions yet taken on key details.

Kate Shoesmith from the British Chamber of Commerce said: "The increased cost to businesses of the proposed changes to zero hours contracts will be a further hammer blow for many firms struggling to keep their heads above water."

She added: "We are already facing a youth unemployment crisis now is not the time to make it even more costly for employers to hire."

Kate Nicholls, chair of UKHospitality, described the "eyewatering cost of these reforms" as arriving after more than £5billion in additional employment costs over the past two years, with over 100,000 hospitality jobs already lost.

Helen Dickinson, chief executive of the British Retail Consortium, warned the published estimates "only tell part of the story, as retailers will have to fork out hundreds of millions of pounds to update their HR and payroll systems."

Shadow Business Secretary Andrew Griffith said: "Once again, it will be young people who will pay the price, during a growing crisis of young Brits out of work."

These costs come on top of an estimated £1billion in annual expenses from other elements of the Employment Rights Act, including enhanced sick pay, greater union access to workplaces and stronger protections against unfair dismissal.

The reforms were championed by Angela Rayner, Labour's former deputy leader who now serves as Housing Secretary.

A proposed 12-week reference period for calculating new contracts has alarmed employers, who fear it could effectively kill off summer jobs and discourage firms from offering extra shifts during busy periods like Christmas.

More than a million young people are currently neither in education nor employment, and businesses have repeatedly cautioned that the cumulative weight of new employment rules, piled on top of national insurance rises and minimum wage increases, is making them increasingly reluctant to take on younger or economically inactive workers.

A government spokesperson defended the plans, stating: "We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable."

They added: "These reforms will give workers in every postcode greater income security and predictability of hours and while no final decisions have been made, we're consulting to get the detail right and ensure this works in the real world."

The TUC pushed back against the headline figures, with a spokesperson arguing that the £2.9billion represents the top end of a broad range and that nearly half rests on the assumption employers will keep cancelling shifts at the last minute.

The union body maintained that the legislation aims to end precisely that practice, and that responsible employers "have nothing to fear."