Labour's worker's rights reforms to have 'net negative' impact on the economy, says OBR

26 March 2025, 15:34 | Updated: 26 March 2025, 19:11

The Government's Employments Rights Bill is expected to have a "net negative impact" on the economy, according to the Office for Budget Responsibility (OBR).

Labour last year revealed a major package of reforms under the Employment Rights Bill, hailed as the biggest boost to pay and productivity in the workplace in a generation.

But according to the OBR's economic and fiscal outlook for March 2025, the economy will take a hit as a result.

It wrote: "Employment regulation policies that affect the flexibility of businesses and labour markets or the quantity and quality of work will likely have material, and probably net negative, economic impacts on employment, prices, and productivity.

"Given these potentially significant impacts, we will incorporate a central estimate of the aggregate impacts of the policy package in our next forecast."

The OBR did not put an exact figure on how much the expected hit will be, with further consultations expected.

It comes as Chancellor Rachel Reeves scrambles to get the economy growing, unveiling her latest changes in the Spring Statement.

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Speaking in the House of Commons, she laid out plans on how the Labour government to get more people back into the workplace while saving the economy £4.8billion.

"If you can work, you should work," the Chancellor told Parliament on Wednesday.

Plans for greater protection for those in work were first championed by Deputy PM Angela Rayner while Labour was in opposition and have since gone to become a key offering from the party.

Labour has branded this its 'Plan to Make Work Pay', with "a core part of the mission to grow the economy, raise living standards and create opportunities for people across the country."

It recently unveiled a series of amendments to the Employments Rights Bill to tackle low pay, poor working conditions and poor job security that it says has been holding the UK economy back.

Measures in the bill include giving workers sick pay from the first day they are ill, new probation protections and greater freedom at work.

Women will be entitled to apply for maternity pay from their first day on the job and will be given greater protections from sacking when they return.

Probation periods, which can stretch for as long as two years, will be capped at six months, giving workers further.

Official Government documents published back in October revealed Labour “expects the policies covered within the Bill to impose a direct cost on business of low billion pounds per year (ie, less than £5billion annually).”

Unions have welcomed the measures as a "seismic shift" from the low pay, low productivity economy they accused the previous Conservative government of presiding over.

But business owners fear it may force them to 'freeze employment' as the changes could tie up small firms in too much red tape.

Martin McTague, national chairman of the Federation of Small Businesses (FSB), warned: "With all the good intentions, this [Bill] will inject fear into that employment relationship. It makes most small businesses very nervous."

A Government spokesperson told LBC: "As the OBR itself says, they are yet to reflect the impact of the Bill in their forecast.

"Our impact assessment was clear that the Employment Rights Bill could have a positive direct impact on economic growth and help support the Government's Mission for Growth.

"It concludes that the package could have 'a positive but small direct impact on economic growth' and will 'help to raise living standards across the country and create opportunities for all.'”