Angela Rayner's crackdown on zero-hours contracts could cost businesses £2.9 billion a year, Labour admits, sparking fears of 'jobs horror show'

By MARTIN BECKFORD, POLICY EDITOR Published: 22:50, 12 August 2026 | Updated: 22:56, 12 August 2026 Labour has admitted Angela Rayner's crackdown on zero-hours contracts will cost businesses up to £3billion a year. Ministers were warned they risk unleashing a fresh 'jobs horror show' after official analysis revealed the full cost of workers being guaranteed shifts and receiving compensation if they are cancelled. The analysis published by the Government on Wednesday claimed that the measures in the Employment Rights Act, driven through by Ms Rayner when she was Deputy Prime Minister, would have a 'small, positive impact on growth' by increasing 'worker wellbeing'. But it conceded: 'The measures will increase administrative costs and reduce flexibility for employers. This could make it harder for employers to respond to changes in demand, with potential knock-on impacts on output.' The report said the biggest impact will be in sectors such as hospitality, retail and health care where demand is variable and employers currently adopt flexible staffing models. It estimated: 'The direct cost to employers of the reforms as a whole could be between £350 million and £2.9 billion per year.' And it said that overall the reforms would lead to a net cost to the economy of between £300m and £1.4bn a year. This includes the cost of giving regular workers the right to demand guaranteed hours, as well as payments for late notice changes to their shifts. Angela Rayner and Andy Burnham vowed to revive high streets on a visit to Derbyshire The exact cost will depend on how much workers have to work in order to gain the right to guaranteed hours. If the threshold is set at between eight and 20 hours a week, the Government's preference, the direct cost to businesses will be lower. But industry chiefs warned the reforms will still backfire by making it more difficult to hire staff – pushing up unemployment particularly among the young. Unemployment has already jumped from 4.1 per cent to 4.9 per cent since Labour came to power with 151,000 jobs lost as firms are battered by higher taxes. Tina McKenzie, head of the Federation of Small Businesses, said: 'With more than 150,000 fewer people on payrolls than when Labour came to power, small businesses have been hoping that the new Government would follow the Prime Minister's lead and start a more positive conversation with businesses – not sneaking out a multi-billion pound cost to business without even bothering to quantify the number of people who will be left out of work claiming benefits as a result of policies that make no sense. 'Small businesses are willing to give the new Government a chance, but not to allow the last jobs horror show to repeat itself again.' Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the Government's estimate 'undercounts the compliance and process costs business will face'. He added: 'Even so, a potential £2.9billion addition to the rapidly rising cost of employment will only make our youth unemployment issues worse.' Kate Nicholls, head of UK Hospitality, said: 'The Government should be incentivising employment in hospitality, as a sector that employs the most young people, most part-time workers and the most non-graduates. Instead, these reforms add yet more cost, at a scale that far outweighs the cost benefits for employees.' A Government spokesman said: 'We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable. '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.'