Is Labour’s workers’ rights Bill really a death knell for small business?

Larger businesses took the proposals in their stride, while smaller firms were outraged. But is it really going to cause a shockwave? James Moore investigates

Deputy prime minister Angela Rayner has been closely involved in Labour’s employment reforms (PA Wire)

If we are to believe some of the more hysterical commentary, Labour’s plans to beef up workers’ rights and “make work pay” will be the death of business.

Small and medium-sized enterprises (SMEs), the rhetoric suggests, will immediately cease hiring because they are likely to face a horrific surge in costs – before being slowly strangled by red tape.

But is it quite as bad as is being suggested? Let’s find out...

The Employment Rights Bill is a venture shared between deputy prime minister Angela Rayner and business secretary Jonathan Reynolds. It contains 28 individual reforms, a substantial chunk of which were promised in the Labour manifesto.

The biggest changes include unfair dismissal protections from day one – rather than the current two-year wait. The right to paternity leave and unpaid parental leave will also apply as soon as a new worker clocks on. At the moment workers earning less than £123 per week cannot claim statutory sick pay (SSP), which is £116.75 a week. This limit will be removed, although there will be a lower rate for lower earners.

The right to request flexible working (compressed hours, hybrid working, staggered start times to allow for childcare etc) will, meanwhile, be strengthened. The government wants this to become the default, with employers having to show good reason for saying no.

There will also be consultations on a more business-friendly statutory probationary period for new workers – although unfair dismissal protections will still apply. People on zero hours contracts will be able to demand guaranteed hours if they work regular shifts over a set period. It’s the absolute ban some have demanded, but perhaps not all workers actually want set hours. The intention is that the “flexibility” of the UK labour market should cut both ways.

Reactions have been mixed, to say the least. Unions were mostly happy, but so were many businesses – which is surprising. And some were prepared to say so – with the likes of BT, Sainsbury’s, British Gas owner Centrica and several others quoted in the government’s own press release. The CBI was also broadly positive, with the business group praising the government for its “willingness to engage with businesses and unions”.

Cynics may say it is in the interests of the aforementioned businesses to play nice with a new government. But the generally supportive tone is still significant. And it strikes a chord against the critics.

“A rushed job, clumsy, chaotic and poorly planned,” the Federation of Small Businesses (FSB) thundered. Its members were not shy about expressing their unhappiness, either. The FSB said the Bill would leave them “struggling” to keep up with the sheer number of reforms, while making them deeply reluctant to hire new workers.

Polling for the Institute for Public Policy Research, the TUC and Persuasion UK by Opinium found that not all small firms are opposed to improved workers rights. A survey of 1,000 employers revealed that two-thirds (68 per cent) of senior decision-makers and middle managers, including six in 10 (61 per cent) of those at small businesses, believed that the rights of ordinary workers should be stronger.

Perhaps the Budget could be used as a means of assisting those scrambling for the indigestion pills? The Institute of Directors said its chief disappointment was “the absence of measures to assist businesses, particularly SMEs” in coping with the changes. Chancellor Rachel Reeves could address this and it would be a politically savvy move for a government which has committed more unforced errors than a teenage tennis prodigy dazzled by the bright lights on their first appearance on Centre Court at Wimbledon.

This is a Bill that will ultimately serve to raise the employment floor and, as the Resolution Foundation pointed out, will primarily benefit the low paid and those in insecure employment. Good employers really have nothing to fear although I do wonder whether it will lead to a rise in temporary to permanent hiring, where employees find themselves starting out on, say, a six month contract before being offered a full time role. How the proposed Fair Work Agency, bringing together existing enforcement bodies, responds to this (if it does), will be interesting to watch.

What it does not do is turn the UK’s labour market into a high regulation one, certainly not by European standards. There is still plenty of flexibility available to employers. Downsizing and/or restructuring will continue to be considerably easier in Britain than it is in much of Europe.

If there is an impact on jobs – as critics have claimed there will be – it will be only really be noticeable if the economy stalls. Keeping it from doing that remains this government’s biggest challenge.