New government analysis released on 13 August 2026 shows that Labour's planned crackdown on zero-hours contracts could cost UK businesses between £350m and £2.9bn a year, depending on how the policy is eventually implemented. The reforms aim to reduce the number of hours staff can work before employers must offer them guaranteed hours, with hospitality and retail firms expected to bear the brunt of the changes.
The official impact assessment, published as part of a government consultation, sets out a range of potential costs depending on which hours threshold ministers ultimately choose. According to The Telegraph, the proposed right to guaranteed hours would apply to workers regularly clocking somewhere between 8 and 20 hours a week, though the exact cut-off point has yet to be finalised.
How much could this cost employers?
The government's central estimate puts the annual cost to businesses at £1.1bn, though the final figure could swing significantly depending on the threshold chosen. Per the same Telegraph report, costs could climb as high as £2.9bn if the threshold is set at 24 hours a week, whereas setting it at just 8 hours would limit the impact to around £350m.
A substantial share of the higher-end estimate stems from compensation payments for cancelled shifts. Roughly £1.2bn of the top estimate would come from businesses being required to compensate workers when shifts are cancelled at short notice, according to the Financial Times.
What trade-offs does the government acknowledge?
Ministers themselves concede the policy carries drawbacks for employers. The analysis flagged "potential trade-offs," including higher administrative burdens and reduced flexibility for companies, warning it could make it "harder for employers to respond to changes in demand."
Skills Minister Baroness Jacqui Smith defended the reforms, arguing they would ensure staff are treated fairly. She told a national broadcaster that the government would proceed carefully with implementation.
"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."
How have businesses reacted?
Trade bodies representing employers argue the projected costs are steeper than they had anticipated and disproportionate to the benefits for workers. Kate Shoesmith, director of policy at the British Chambers of Commerce, warned the change would land at a difficult moment for struggling firms.
"We are already facing a youth unemployment crisis – now is not the time to make it even more costly for employers to hire."
Helen Dickinson, chief executive of the British Retail Consortium, questioned whether the reforms would deliver genuine value to workers once the financial burden on businesses is factored in. She said retailers alone would need to spend hundreds of millions of pounds updating payroll systems to comply with the new rules.
What do unions say?
The Trades Union Congress pushed back on claims that the reforms would prove excessively costly, arguing that the bulk of the extra expense would only materialise if employers continued cancelling shifts at short notice.
"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."
How does this compare with past estimates?
A previous government impact assessment covering zero-hours exclusivity clauses estimated business costs in the millions rather than billions, according to a Department for Business, Innovation and Skills document. That far smaller projection underlines how significantly broader the current guaranteed-hours proposal is in scope and expected cost compared with earlier, narrower interventions.
The debate over guaranteed hours comes after zero-hours contracts hit a record 1.23 million workers, a trend driven largely by younger employees, as detailed in our earlier coverage of the record rise in zero-hours contracts ahead of Labour's planned crackdown.
What happens next?
The Department for Business and Trade has opened a formal consultation to determine precisely where the hours threshold should be set, according to the Financial Times. The outcome of that consultation will determine whether the eventual cost to businesses lands closer to the £350m floor or the £2.9bn ceiling identified in the government's own analysis.
Key Facts
- Government analysis estimates the policy could cost businesses between £350m and £2.9bn a year.
- The central government estimate for annual cost is £1.1bn.
- Around £1.2bn of the highest estimate stems from compensation for cancelled shifts.
- The proposed guaranteed-hours threshold is expected to fall between 8 and 20 hours a week.
- Hospitality and retail firms are expected to be hit hardest by the changes.
