The UK government's analysis suggests a crackdown on zero hours contracts could cost firms between £350m and £2.9bn annually. The key numbers are £1.1bn as the middle estimate of overall costs, with £1.2bn of those costs coming from businesses forced to pay workers compensation for cancelled shifts. The government believes the reforms would provide a £10bn boost to the economy due to improved wellbeing and productivity, lowering the net average cost to between £300m and £1.4bn. Business groups claim the cost to employers is disproportionate to the benefits for workers, with the British Chambers of Commerce calling it "a further hammer blow" for companies struggling with a youth unemployment crisis.
Written by the local model on 2026-08-14,
using this article's own text rather than the other coverage of the
same event (that is the story summary below).
Story summary
A crackdown on zero hours contracts proposed by Labour's employment reforms could cost businesses up to £2.9 billion per year, according to government analysis. The proposed policy would require employers to offer guaranteed time to workers after reaching a certain number of hours, but the threshold is still undecided. This change could result in administrative costs and reduced flexibility for companies, making it harder for them to respond to changes in demand. At the upper end of estimates, £1.2 billion in costs would come from businesses having to pay workers compensation for cancelled shifts. However, the middle estimate is £1.1 billion overall. Skills Minister Baroness Jacqui Smith says the reforms will ensure workers are "fairly paid", but business groups argue the cost to employers is disproportionate compared to the benefit to workers. The total cost depends on which workers the policy applies to: if it affects those working 48 hours a week, for example, or some other threshold**.
Written for “UK Zero Hours Work Crackdown” on 2026-08-31,
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- Published
Businesses could face costs of up to £2.9bn a year because of a crackdown on zero hours contracts, according to the government's own analysis.
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Businesses → publish → analysis
Labour's employment reforms are set to cut the number of hours staff can work before they must be offered guaranteed time.
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they → set → time
Official analysis released on Wednesday showed it could cost employers between £350m and £2.9bn, based on the eventual threshold of hours the policy impacts.
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policy → release → hours
Skills Minister Baroness Jacqui Smith said the reforms would ensure workers are "fairly paid" but business groups said the cost to employers was "disproportionate" compared to how much it would help workers.
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it → say → workers
Government analysis said there were "potential trade-offs" that include more administrative costs and less flexibility for companies, including making it "harder for employers to respond to changes in demand".
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employers → say → demand
At the upper end of its estimate, about £1.2bn in costs would come from businesses who are forced to pay workers compensation for cancelled shifts.
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who → come → shifts
However, the middle estimate of how much the policy would cost overall is £1.1bn.
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policy → cost → much
The total cost depends on who the policy eventually applies to: if it applies to people working 48 hours a week, as some unions have called for, it will cost companies more.
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it → depend → more
The government's preference is for it to fall somewhere between eight and 20 hours a week.
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it → fall → ?
In that case, the overall cost would fall far short of the higher estimates cited in the analysis.
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cost → fall → analysis
Officials also wrote that the reforms could provide a £10bn boost to the economy because of better wellbeing and productivity.
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reforms → write → wellbeing
That would lower the net average cost of the reforms to between £300m and £1.4bn.
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That → lower → 300
It said the overall cost figures do not capture the full range of benefits because they are "not possible to monetise".
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they → say → benefits
It said hospitality and retail companies, many of which rely heavily on zero hours workers, would be most affected by the change.
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many → say → change
The document was released as part of a consultation into how many hours should eventually fall under the new rules.
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hours → release → rules
Baroness Smith told Sky News the government will "look very carefully" at how it brings in the changes.
"
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it → tell → changes
I don't think it's fair for somebody to be on a contract where they literally don't know whether or not they're going to be working at all, and yet they're bound by that contract."
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they → think → contract
The number of people on zero hours contracts hit a record high of 1.23 million last December, a 91,000 annual increase, according to official data.
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number → hit → data
But business groups said the costs were more than had originally been forecast.
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costs → say → ?
Kate Shoesmith, director of policy at the British Chambers of Commerce, said it would be "a further hammer blow" for companies that are struggling.
"
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that → say → companies
We are already facing a youth unemployment crisis – now is not the time to make it even more costly for employers to hire."
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employers → face → crisis
Helen Dickinson, the chief executive of British Retail Consortium, questioned whether the reforms would "actually deliver value for workers" because of the cost to businesses.
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reforms → question → businesses
She added that retailers would also have to pay "hundreds of millions of pounds" to update their payroll systems.
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retailers → add → systems
The Trades Union Congress said most of the extra costs would only come if businesses cancelled workers' shifts at the last minute.
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businesses → say → minute
A spokesperson for the TUC said: "The aim of this legislation is to stop this practice and give variable hours workers security and stability - so good employers have nothing to fear."
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employers → say → nothing
Charlotte Brumpton-Childs, GMB national secretary, called zero hours contracts "archaic", adding that businesses were "of course … going to grumble" about the policy.
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businesses → call → policy
