Employment Bill will wreak havoc on our already fragile economy, say small firms

Small firms are tightening their belts on jobs, with potential changes that will expand the grounds for unfair dismissal and higher sick pay costs at the top of their list of worries, research from the Federation of Small Businesses (FSB) shows.

New data shows that in the last quarter of 2024, 33 per cent of small employers said they expect to reduce staff, up from 17 per cent in the previous quarter.

Fewer businesses are also looking to hire – with only 10 per cent of small employers planning to take on more staff, down 14 per cent from the previous quarter. Meanwhile, 56 per cent expect to keep their workforce the same.

Elsewhere, 51 per cent of small employers say labour costs are one of the greatest barriers to growing their business.

The upcoming Employment Rights Bill is also causing dread among the small business community, and in response to a separate FSB survey last year, 75 per cent of small employers highlighted fears relating to unfair dismissal changes, while 74 per cent raised concerns about changes to Statutory Sick Pay (SSP).

In fact, two thirds (67%) of small employers say the proposals in the Employment Rights Bill would make them curb hiring and one third (32%) plan to reduce the number of employees they have before the measures are introduced.

The Prime Minister should now show he “gets” the importance of creating and sustaining jobs by scrapping this part of the Bill, returning instead to the one-year qualifying period in place under the last Labour Government, and introducing a SSP rebate.

Tina McKenzie, FSB’s Policy Chair, said: “The figures speak for themselves – plans to allow employees to sue their employers on their first day on the job will wreak havoc on our already fragile economy, while changes to Statutory Sick Pay will make employers think twice about their hiring plans.

“Of course, existing protections against unfair dismissal for protected characteristics from day one are essential and should remain. But extending these rights to any and all cases from day one risks opening the door to frivolous claims.

“Ministers should recognise the risk to jobs and resist any approach that comes across as out of touch with business reality, instead of brushing off their concerns.

“The Prime Minister should ditch these reckless changes to unfair dismissal and reinstate the one-year qualification period that worked under the last Labour Government. It’s a zero-cost fix that would show he understands what it takes to create and sustain jobs.

“If taking on staff becomes a legal minefield, businesses will simply stop. That means more people on benefits, a ballooning welfare bill, and a devastating hit to living standards. Those who will be shut out of work because of this Bill deserve better from the Government.”