Small businesses warn of layoffs as new employment rights bill prompts worry

Nearly every small business in the UK is bracing for staff cutbacks in the wake of proposed employment law changes, according to a survey by the Federation of Small Businesses (FSB).

The survey of 1,270 companies found that 92 per cent fear the new legislation will undermine hiring and expansion plans, with nearly a third planning to reduce their workforce in the next year.

The bill, currently under committee scrutiny in the House of Commons, aims to address what ministers describe as an imbalance of power between employers and workers. Among its measures are ending zero-hours contracts, expanding statutory sick pay, strengthening union rights, and granting workers protection from unfair dismissal from day one of their employment.

Critics, particularly from the small business community, argue these changes could raise operating costs and depress already fragile confidence. The cost impact may be exacerbated by recent fiscal moves, including Chancellor Rachel Reeves’s £40 billion in tax hikes and a 6.7 per cent increase in the minimum wage, both of which take effect this year.

Tina McKenzie, policy chair at the FSB, warned that “small firms have made it crystal clear” the bill will diminish their appetite to hire. She said they worry that increased legal risks around unfair dismissal claims may hamper recruitment and investment.

The Department for Business and Trade maintains that the legislation is part of a wider effort to boost living standards and drive economic growth, noting that “this government is pro-business and pro-worker”. It points to its recent steps to tackle late payments and bolster funding for small firms as evidence of its commitment.

KPMG and the Bank of England have each suggested that higher government spending may offer a short-term boost to the economy, although the central bank cautioned inflation is likely to remain above target, potentially weighing on growth and business sentiment into 2024 and beyond.