Labour's workers' rights plan set to cost more than the £5bn estimated

Labour’s workers’ rights revolution is set to cost even more than the £5billion ministers estimated, a watchdog has warned.

Job losses and wage cuts may also have been underestimated in the Government’s impact assessments of its plans, the Regulatory Policy Committee (RPC) said.

In a withering report yesterday, the regulator said Whitehall’s impact assessment for Deputy Prime Minister Angela Rayner’s Employment Rights Bill was ‘not fit for purpose’.

The Government had admitted the workers’ rights overhaul could cost businesses up to £5billion a year, but the RPC said this figure may need ‘clarifying’.

In particular, it highlighted the cost of an agreement on adult social care pay which may be ‘much higher’ than the £1billion the Department for Business and Trade claimed.

Ms Rayner’s overhaul contains more than 70 measures aimed at improving conditions for employees and boosting trade union power. 

They include ending exploitative zero-hours contracts, establishing day-one rights for paternity and parental leave, and making flexible working the default where practical.

The watchdog deemed eight of the 23 individual impact assessments into the measures not fit for purpose. Because six are in the ‘highest impact’ category, the overall opinion was that the impact assessment as a whole is ‘not fit for purpose’, the RPC said.

It added 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’.

Last night, business groups issued fresh warnings about the impact of Labour’s plans. 

The Federation of Small Businesses said the RPC’s findings were a ‘sharp wake-up call’ for ministers, who must ‘think again about the dangers of a cavalier approach to jobs and work’. 

Policy chairman Tina McKenzie said: ‘The country cannot afford to pile further cost and risk on to small employers based on such an overwhelmingly weak evidence base.’

Tory business spokesman Andrew Griffith said: ‘Businesses up and down the country knew this already. Just like the National Insurance jobs tax, this Bill is the second wave of an attack on job creators.’

The Prime Minister’s spokesman said: ‘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 assessments.’