Implement the Employment Rights Act

Policy baseline

The government is implementing employment-rights reforms from 2026 and 2027. Fiscal costs are mostly enforcement, tribunals and public procurement exposure.

• Worker gains are mainly regulatory, not direct transfers.
• Employers face compliance and flexibility costs.
• Small firms and casual sectors are more exposed.

Core trade-offs

The direct beneficiaries are protected employees and unions. The costs fall mainly on employers, consumers and some marginal workers. The main economic question is higher expected labour costs can reduce hiring.

• Protected employees and unions gain most directly.
• Costs fall mainly on employers, consumers and some marginal workers.
• Key risk: higher expected labour costs can reduce hiring.

Fiscal impact by 2028-29

+GBP 0.3bn to +GBP 5.0bn. Central estimate: +GBP 1.2bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Higher expected labour costs can reduce marginal hiring and contracting.
• Wages: Protected workers gain security or pay; some costs shift through lower hours or prices.
• Prices: Labour-intensive sectors may pass costs to consumers.
• GDP / productivity: Likely mildly negative if rules reduce flexibility; benefits depend on enforcement and productivity.

Assessment

This is a real trade-off, not a free gain. Protected employees and unions benefit, while employers, consumers and some marginal workers bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Hiring risk: Employers may reduce marginal hiring, hours or outsourcing flexibility.
• Tribunal pressure: Rights without enforcement capacity create delay and uncertainty.
• Small-firm burden: Compliance costs are heavier for small employers.

Safeguards

• Phase rights with tribunal capacity.
• Offer small-firm compliance guidance.
• Monitor hiring, hours and contracting.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for implement the employment rights act Internal - PolicyLens, 2026
• The Costs of Wrongful-Discharge Laws Academic article - Autor, Donohue and Schwab, Review of Economic Studies, 2006
• Unemployment, Institutions, and Reform Complementarities Academic article - Bassanini and Duval, Economic Journal, 2009
• Budget 2025 UK government budget - HM Treasury, 2025
• Employment Rights Act implementation roadmap UK government roadmap - Department for Business and Trade, 2025
• Employment Rights Act economic analysis UK government analysis - Department for Business and Trade, 2025
• Change: Labour Party Manifesto 2024 Party policy source - Labour Party, 2024

Other Labour policies

• Raise employer National Insurance
• Apply VAT to private school fees
• Replace non-dom tax status
• Raise capital gains tax rates
• Extend the Energy Profits Levy
• Capitalise the National Wealth Fund
• Capitalise Great British Energy
• Expand the Warm Homes Plan