Labour staff’ rights shake-up sees small companies slash jobs and lower hiring

Nearly a third of small businesses plan to axe staff this year in response to legislation introduced by the new Labour government, data suggests.

A poll conducted by the Federation of Small Businesses showed 32 per cent of respondents plan to reduce headcount as a result of the Employments Rights Bill, while 67 per cent say they will recruit fewer new workers.

More than 90 per cent of members said they were concerned about the bill, with many citing a fear of getting sued under planned changes to unfair dismissal legislation.

The FSB has urged the Government to make urgent changes to the bill, which it says will see Britain’s benefits bill soar after nearly half of respondents to its survey claimed they would avoid hiring out-of-work and first job applicants.

The Employment Rights Bill is the first phase of delivering Labour’s ‘Plan to Make Work Pay’, and provides support for employers, workers, and unions ‘to get Britain moving forward’.

The Government says the bill will update and modernise the current legislative framework in relation to employment rights.

It has passed its first and second reading, and is now at the committee stage in the House of Commons. The bill will also have to pass the Commons’ report and third reading stage, before being submitted to the House of Lords for further scrutiny.

The FSB wants the Government to drop provisions within the bill that would allow employees to take employers to a tribunal over unfair dismissal from their first day on the job, according to the trade body.

FSB policy chair Tina McKenzie said: ‘If employers fear they will be sued, fewer will hire – with knock-on effects including a rising benefits bill and a lasting drag on living standards across the UK.’

The FSB says Prime Minister Keir Starmer should instead return to a one-year qualifying period for tribunal, which was in place under the last Labour Government.

It marks the latest pushback from the business community in the wake of Labour’s Autumn Budget, which will see firms paying a higher rate of national insurance contributions and National Living Wage from April.

Businesses, particularly those in the hospitality sector, have warned that Chancellor Rachel Reeves’ tax plans will see unemployment rise and businesses forced to close.

McKenzie added: ‘Small firms have made it crystal clear that the Bill will not motivate them to hire more whatsoever. Their feedback is emphatic, resounding, and overwhelming.

‘Ministers must show they get the risk to jobs and avoid a cavalier, dogmatic or patronising approach to the loud and clear feedback from small businesses. The economy is in no fit state for a “war on work”.

‘These changes would have a severe negative impact on the real economy. All those who will be locked out of work as a result of this Bill deserve better from the Government.

‘Returning to the one-year qualification period in place under the last Labour Government, is a more balanced approach and a cost-free route for the PM to show he gets it on the importance of creating and sustaining jobs.’