Zero hours crackdown could cost firms up to £2.9bn a year

Businesses could face costs of up to £2.9bn a year because of a crackdown on zero hours contracts, according to the government's own analysis.

Labour's employment reforms are set to cut the number of hours staff can work before they must be offered guaranteed time.

Official analysis released on Wednesday showed it could cost employers between £350m and £2.9bn, based on the eventual threshold of hours the policy impacts.

Skills Minister Baroness Jacqui Smith said the reforms would ensure workers are "fairly paid" but business groups said the cost to employers was "disproportionate" compared to how much it would help workers.

Government analysis said there were "potential trade-offs" that include more administrative costs and less flexibility for companies, including making it "harder for employers to respond to changes in demand".

At the upper end of its estimate, about £1.2bn in costs would come from businesses who are forced to pay workers compensation for cancelled shifts.

However, the middle estimate of how much the policy would cost overall is £1.1bn.

The total cost depends on who the policy eventually applies to: if it applies to people working 48 hours a week, as some unions have called for, it will cost companies more.

The government's preference is for it to fall somewhere between eight and 20 hours a week.

In that case, the overall cost would fall far short of the higher estimates cited in the analysis.

Officials also wrote that the reforms could provide a £10bn boost to the economy because of better wellbeing and productivity.

That would lower the net average cost of the reforms to between £300m and £1.4bn.