Rayner's employment law forcing ‘stealth tax' on workers

Telegraph

13-07-2025

's employment law reforms will act as a £5 billion 'stealth tax' on workers, a report has warned.
The Deputy Prime Minister is planning a raft of reforms that will make it easier for workers to strike and introduce new 'day-one' rights against unfair dismissal and zero-hours contracts.
But they will also work to suppress wages, effectively taxing employees by increasing costs for their bosses, according to analysis by the Institute of Economic Affairs (IEA).
The think tank said smaller pay rises will equate to a £5 billion 'stealth payroll tax', based on the Government's own impact assessment of the cost on workers.
Business groups have already raised the alarm over the reforms, which they say will make firms more reluctant to hire workers.
The Employment Rights Bill, which returns to the Commons on Monday, contains measures to make it easier for workers to form unions and launch strike action.
Andrew Griffith, the shadow business secretary, said they would result in 1970s-style union militancy and hammer struggling businesses.
'Labour's love-in with the unions is dragging Britain back to the worst economic mistakes of the 1970s,' he said.
'The so-called Employment Rights Bill is nothing more than a Trojan horse for union power and state interference.
'Far from protecting workers, it will price people out of jobs, deterring investment and sending small businesses to the wall.'
In June, the Conservatives pledged to scrap the Bill if they return to office, warning the plans would 'grind our economy to a halt'.
The IEA's report, by Prof J.R. Shackleton, argues that the plans will 'put the public through the wringer' and 'extort more pay from the government – which means, of course, the taxpayer'.
The Telegraph understands the workers' rights plan has already been the subject of dispute between Ms Rayner and the Treasury, which is concerned about the impact on business confidence and economic growth.
The Office for Budget Responsibility, Britain's independent fiscal watchdog, has said they will have a 'probably net negative' impact on a range of economic indicators, including employment, prices, and productivity.
The Government's impact assessment found that the reforms will result in £5 billion higher costs for businesses, which the IEA said would be passed to workers in the form of lower wages.
Ms Rayner has argued that the new rules will boost living standards, giving the public an 'upgrade to our growth prospects and the reforms our economy so desperately needs'.
'Billions in hidden costs'
The professor of economics at the University of Buckingham said: 'Politicians love to announce new employment 'rights' because they think employers pay the bill – but that's an illusion.
'Every mandate, from parental leave to holiday entitlements, acts like a stealth tax that gets passed back to workers through smaller pay rises than they would otherwise receive. The only difference is that no money is raised for the Exchequer,' said Prof Shackleton.
'The Employment Rights Bill will make this much worse, imposing billions in hidden costs that workers will ultimately bear themselves.
'The Government is not protecting workers – it is harming them and undermining its own alleged number one priority to boost economic growth.'
A government spokesman said: 'Too many workers are trapped in insecure, low-paid work, with weak protections that are poorly enforced.
'Through our transformative Plan for Change, this government will deliver the biggest upgrade to workers' rights in a generation, contributing to economic growth, and our measures have strong support from businesses and the public.'